Inventory management, at its very core, it the process of ensuring that materials required for the production of products are available when needed. Further, an inventory management system will be used to ensure appropriate quantities are available to meet demand, but without risking overstock. Overstock of any material will be costly in terms of storage facility costs, and the time value of money, however for perishable goods, the stakes are significantly higher.
The balance between having enough stock and having overstock can be the difference between having a successful and profitable business and having a business that is teetering on bankruptcy. Facing the crises of existence in a post-World War II Japan, Toyota sought to match American productivity, but was unable to mimic the American way because of the condition of the economy. In an attempt to find a solution, Toyota focused on cost-cutting and searched for ways to reduce manufacturing costs (Nayab, 2011), thus the birth of just in time inventory management.
In the case of Toyota, the implementation of just in time was a survival mechanism during an economic hardship; however, today the same methods are used by organizations all over the globe to gain competitive advantage (Yang & Chao-Hsien, 2004), in fact, it would be safe to say that companies that aren’t implementing such systems are facing challenging times and will need to implement such systems to be successful long-term. Just in time (JIT) inventory management systems have some striking similarities with a super market experience.
Supermarkets stock goods based on customer demand, and as customers come in to buy products, the shelves are emptied and replaced with fresh goods from a recent shipment. The customer’s actions in this case are much like the actions of an organization implementing JIT. The organization goes to market to get what it needs now, and will return to the market later when it needs additional materials; this is opposed to the previous methodology which involved a customer (Toyota), ordering and stocking materials for products that aren’t yet needed.
Just in time management focuses on providing a consistent product that exudes high quality, using small lot sizes to reduce inventory, using frequent delivery to counter the small inventory, short lead times, and very close relationships with suppliers (Yang & Chao-Hsien, 2004). Toyota has been very successful at maintain close relationships by encouraging suppliers to be located in close proximity with manufacturing plants. Typically, a Toyota manufacturing plant will be surrounded by suppliers.
This helps the organizations work more closely together and be successful with the inherent last minute orders and deliveries in a JIT paradigm. Just in time management has some very important disadvantages that must also be considered. By the very nature of the paradigm, products are not made and readily available on the shelf. Products are only made when they are ordered; this can be an issue for customers who want immediate satisfaction.
In addition, spikes in demand necessitate an quick response in production, but particular important, a quick response from suppliers of parts used in manufacturing. Finally, because materials used to manufacture products are not stored, price fluctuations in raw materials can have a more drastic impact on organizations that use JIT inventory management (Freedman, n. d. ).
Freedman, J. (n. d. ). The Disadvantages of Just-in-Time Inventory. Retrieved from http://www. ehow. com/info_8667476_disadvantages-justintime-inventory. tml Nayab, N. (May 19, 2011). Toyota and JIT Manufacturing. Retrieved from http://www. brighthubpm. com/monitoring-projects/72086-toyota-and-jit-manufacturing/ Wikipedia. (September 23, 2012). Just In Time (Business). Retrieved from http://en. wikipedia. org/wiki/Just_In_Time_(business) Yang, J. , & Chao-Hsien, J. (2004, March). Just-in-time purchasing: an integrated inventory model involving deterministic variable lead time and quality improvement investment.. International Journal of Production Research, 42(5), px853-863.