How to Best Understand Just In Time Inventory

Executive Summary

  • JIT delivery comes with higher ordering costs, delivery costs, receiving costs and put away costs and delivery costs.
  • JIT means specific things in terms of just in time manufacturing, JIT manufacturing, and JIT production.

Introduction

Just in Time Inventory or JIT inventory have been influential concepts in both just in time manufacturing and in inventory management generally and has been used as philosophical support for reducing the stocking level.

In this article, we will cover all the ways that just in time supply chain has been applied.

JIT Definition or JIT Meaning

The JIT meaning or JIT definition is the reduction of inventory so that the new inventory that replenishes the stocking level right before it is to be depleted. There is some debate as to technically this is when this happens. That is after safety stock has been partially depleted, but there are many different JIT practitioners, and they have differing opinions.

The JIT definition of JIT meaning has several sub-areas. These JIT definition or JIT meaning includes just in time inventory and just in time manufacturing, JIT manufacturing or JIT production, which we will discuss further in the article.

While many people do not know the specifics of the JIT definition or JIT meaning, most do know that JIT results in lower inventory. But what is not at all well known is the method by which JIT proponents arrive at their proposal of stocking level is philosophical and based on the anecdotes of experience in inventory management from Japanese manufacturers.

Just in Time Inventory or JIT Inventory

Just in time inventory or JIT inventory is the minimization of inventory based on the concept that a smaller stocking level can be maintained and an increase in delivery frequency performed. Quantification of the extra costs of the JIT inventory system is not part of the JIT method. The just in time inventory system or JIT inventory system is based upon philosophy, not based upon developing a body of evidence to support the move away from traditional inventory management.

JIT Delivery and Higher Ordering Costs, Delivery Costs, Receiving Costs and Put Away Costs and Delivery Frequency

Extra costs of the JIF inventory system include higher ordering costs, higher delivery costs, higher receiving costs and

  • Higher Ordering Costs
  • Higher Delivery Costs
  • Higher Receiving Costs
  • Higher Put Away Costs

Put away is the process of moving and stocking the inventory at its stocking place. Put away follows goods receipt.

One of the primary reasons why JIT proponents don’t calculate the ordering costs, delivery costs, receiving costs or put away costs is that if this were done, the overall costs would necessarily look higher. The reason for this is that the inventory carrying cost is far lower than all of the transactions that make up the stocking level.

Delivering in small quantities with high delivery frequency is called JIT delivery. Many shipping companies specialize in JIT delivery frequency to meet the market demand. JIT delivery can be driven my JIT or Lean thinking, or it can apply to factories in congested areas that lack sufficient stock space.

The EOQ formula produces an order quantity based on a trade-off between inventory holding cost and inventory ordering cost. In such a formula, the ordering cost costs, delivery costs, receiving costs and put away costs could all be placed into the ordering cost category. JIT inventory management does not support the concepts of such mathematical determinations.

Just in Time Manufacturing, JIT Manufacturing or JIT Production

JIT primarily came from Japanese manufacturers, through US consultants and to global companies. Although the greatest JIT craze was probably in the US. Just in time manufacturing, JIT manufacturing or JIT production means JIT applied to manufacturing. Therefore, JIT is a manufacturing inventory concept that came from factories and was then applied to the overall supply chain.

Just in Time Supply Chain

Just in time supply chain is simply applying just in time manufacturing, JIT manufacturing or JIT production principles to supply chain, which means to inventory management outside of the factory. Just in time supply chain supports seeing the overall supply chain as if every stocking position and every stocking level is a short lead time product location that is no different than a manufacturing facility that is lucky enough to be able to be continuously replenished under the Toyota, inventory model.

JIT Inventory System

A JIT inventory system is simply a method that applies JIT. Any supply planning or MRP/ERP system can be made to operate under JIT principles. This typically results in the system being set to work on consumption-based planning using methods like reorder points. JIT is opposed to forecasting philosophically, considering it too unreliable. The problem is that while this may apply to a stocking level or stocking position, it is not possible to apply consumption based planning in all circumstances. And the longer the lead time.

Misinformation on Inventory Conceptually Because of Lean or JIT

Lean is just rebranded JIT. Since at least the 1980’s a philosophy of keeping low inventories has gone by various names. At one time it was JIT, and then it became Lean. JIT was based upon low inventories that the Japanese were able to keep. But without understanding, that Japanese companies work more collaboratively than US companies. Second that many industrial areas in Japan have suppliers located close to their customers. The US does not have the same supplier network setup that Japanese companies do. Also, if simply a supplier is maintaining your inventories, then the overall system inventories are not lower. This distinction was left out of most of the explanations provided to US companies by JIT/Lean consultants.

Lean is primarily a philosophy which is based on taking a concept from production planning that works in specific circumstances. Lean does make sense when it uses an analytical approach to segment the product location database and converts some of the unforecastable product locations to reorder point planning. 

Conclusion

Just in time inventory rose from just in time manufacturing or JIT production to be highly influential in inventory management coming to be known as just in time supply chain. JIT and lean are non-evidence based approaches to inventory management that are based on philosophy and anecdotal evidence.

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References

Lean and Reorder Point Planning Book


Lean and Reorder Point 2

Lean and Reorder Point Planning: Implementing the Approach the Right Way in Software

A Lost Art of Reorder Point Setting?

Setting reorder points is a bit of a lost art as company after company over-rely upon advanced supply planning methods to create the supply plan. Proponents of Lean are often in companies trying to get a movement to Lean. However, how does one implement Lean in software?

Implementing Lean in Software

All supply planning applications have “Lean” controls built within them. And there are in fact some situations where reorder points will provide a superior output. With supply planning, even within a single company, it is not one size fits all. The trick is understanding when to deploy each of the approaches available in software that companies already own.

Are Reorder Points Too Simple?

Reorder points are often considered to be simplistic, but under the exact circumstances, they work quite well.

There are simply a great number of misunderstandings regarding reorder points – misunderstandings that this book helps clear up.

Rather than “picking a side,” this book shows the advantages and disadvantages of each.

  • Understand the Lean Versus the MRP debate.
  • How Lean relates to reordering points.
  • Understand when to use reorder points.
  • When to use reorder points versus MRP.
  • The relationship between forecastability and reorder points.
  • How to mix Lean/re-order points and MRP to more efficiently perform supply planning.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: The Lean versus MRP Debate.
  • Chapter 3: Where Supply Planning Fits Within The Supply Plan
  • Chapter 4: Reorder Point Planning
  • Chapter 5: Lean Planning.
  • Chapter 6: Where Lean and Reorder Points are Applicable
  • Chapter 7: Determining When to use Lean Versus MRP
  • Chapter 8: Mixing Lean and Reorder Points with MRP-Type Planning

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