What are the pros and cons of JIT inventory control?

JIT Inventory stands for “Just in Time” Inventory. Just In Time Inventory is an inventory system in which companies order just enough of the supply that they need from their suppliers, no more no less. JIT Inventory is useful for several reasons which I will highlight below. However, it is also important to note that there are some cons with this system that I will point out as well. Nonetheless, there are ways in which business owners can combat the cons of this system, especially if they believe this will be the best inventory system for their type of business.

Some businesses that use the JIT Inventory System include: McDonald’s, Dell, and Wal-mart. The JIT system is beneficial to these companies because:

• By using the JIT inventory system, McDonald’s and Dell are able to make customer orders, when they order.

Ex. Instead of trying to sell customers pre-made burgers or computers that get old quickly, these companies prefer to make it right when the customer orders, and not before.

• Companies are able to satisfy customers order the way the specific way any individual customer may request.

Ex. Because the company does not pre-make their final product, they are able to allow the customer the opportunity to custom tailor their order the way the customer wants it to be made.

• JIT inventory allows orders to be satisfied quicker.

Ex. If companies are in the habit of producing products generically, it would probably take them longer to produce a product that is tailored individually. If the company is already in the habit of producing custom tailored orders, it does not take them as long comply with the request, and thus they are able to earn money quicker, because they are able to meet individual requests quicker.

• JIT inventory allows the company to satisfy orders at a lower cost to the company and to the customer.

Ex. Because companies that use JIT complete orders right when their customers order, instead of before their customers order, they only make enough complete orders to satisfy the exact amount of demand that they have for that particular product. Thus they do not end up wasting a lot of product, because what they only make enough orders for what they will sell. The company orders supplies, only when they know they are about to run out and need to restock, even then, they only order a small amount of supply. Because the company is not wasting their supplies, they are able to keep their prices low for customers.

• JIT Inventory allows customer satisfaction to be increased overall.

Some Con’s to the JIT Inventory System:

Companies who are dependent on one main supplier can be easily set at a disadvantage because:

• The supplier could drive up the cost of your supplies because there is no other resource available for you to get your supply needs met.
• If the supplier has a disruption in their company, it could cause a disruption in your company because they cannot meet your needs due to issues within their company.

Ways to Combat the Aforementioned Issues:

In order to try to prevent the cons of JIT Inventory System from affecting your company, business owners could keep the following tips in mind when deciding how to go about securing Just In Time Inventory:

• Businesses could try to secure more than one companies that supply their needs at competitive prices.
• If a business decides to go into contractual agreement with a supplier, the business should try to keep the sign short term contracts, in order to keep the supplier doing all that they can to keep your business, instead of vice versa, in which the company feels as though they can do whatever they feel to  because you’re locked into a long term agreement.

If all else fails, companies can always manufacturer of their own supplies so that they do not have to depend on outside sources for their supplies, and thus decrease the risks associated with the JIT Inventory System.

Sources:

“McDonald’s A Guide to the Benefits of JIT”

Inventory Management Review

Charles Atkinson on Inventory Management

Website: http://www.inventorymanagementreview.org/justintime/

11/8/2005

Date Retrieved: 5/6/2011

“The Risks of Being Just In Time”

By: Nick Koletic

10/17/2005

Website: http://www.inventorymanagementreview.org/2005/10/the_risks_of_be.html

Date Retrieved: 5/6/2011

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