The ‘Just in Time’ (JIT) business model is not new. These models might go by different names, such as ‘Lean’ or the original ‘Toyota Production System,’ but they’re still big news to supply chains. And those chains that truly want to be successful need to operate in accordance with this model.
What are Just in Time Deliveries?
Stepping back in time, business leaders would operate on a ‘Just in Case’ model. This meant holding stock and inventory in case it was needed, so that in the event of a peak in demand there was plenty of supply—a very rudimentary stock control system. There were a few costly problems with this. Notably, there is the cost of storing and holding on to inventory combined with the possibility of stock becoming obsolete.
In the modern marketplace, the risk of stock obsolescence is even higher. With continual advances in technology and an increasingly savvy and demanding consumer, very few products retain an unchanging nature with an even cycle of supply and demand.
This is where JIT comes in. With JIT there’s minimal stockpiling or holding on to parts or products in anticipation of demand. Instead, there is a rapid cascade response to demand all the way through the supply chain. No one is holding inventory, and goods are manufactured to order.
What are the Benefits of Just in Time Deliveries?
The aim of JIT deliveries is simple: increase efficiency whilst reducing waste. Warehousing, stockpiling, and the like are effectively non-value-adding activities. JIT aims to eliminate these. With JIT you only receive parts, goods, or products as they are needed. Inventory costs can, therefore, decrease enormously.
With the successful implementation of JIT, production runs are shortened, warehouse storage requirements are eliminated, and overall there is less expenditure on raw materials. The knock on effects are more efficient use of working capital and a more holistic responsive system. As well as a maximizing of profit margins.
Looking at examples it is possible to see why JIT deliveries make sound economic success. Harley Davidson has not only increased productivity through JIT deliveries, but they reduced inventory levels by a staggering 75%. Even more, efficiency has boomed because problems could no longer be hidden in amongst a large, but costly, inventory. Problems had to be solved, driving greater efficiency.
Perhaps one of the greatest success stories of JIT is ZARA, the fashion retail giant. Worth an enormous $9.4 billion, they are definitely successful. The key behind this success is a JIT business strategy. Very little stock is held at any point in the supply chain. Instead, twice a week, individual store managers process orders. ZARA is an incredible four times more profitable than an average retailer largely thanks to its well-honed JIT business model.
However, get JIT wrong, and there are potentially devastatingly costly disruptions in the supply chain.
What Happens When Just in Time Deliveries Go Wrong?
Owing to the fact there is less ‘give’ in a JIT supply chain process, if something goes wrong it can be tricky to overcome and rapidly cascade into a major problem. Toyota, hailed as the founding father of JIT, discovered this when they experienced a fire in 1997 at their brake parts plant. It’s widely understood the situation could have been even more dire, but because there wasn’t a nice line of cars stacked up like a traffic jam ready for sale, Toyota lost $15 billion in revenue whilst they rallied around getting production of this one component part back in action.
Deeper Insights Needed
So JIT sounds good in theory, but how do businesses on the front line of supply chains actually ensure the system works and doesn’t end up causing problems or creating an inability to meet demand? Addressing the obvious issue of inflexibility and the consequences this can have for vulnerability in the case of sudden shifts in the market is key.
In short, for JIT to truly work you need a greater level of planning and insight. You need to not only understand sales trends, but you need to be able to scrutinize them in fine detail. JIT requires visibility into every link in the supply chain, and with that visibility you also need trust and collaboration at maximum levels.
JIT is impossible without this insight and analysis. The only way the insight and analysis are possible is through technology. Supply chains, by their very nature, can be unwieldy beasts. Technology, such as inventory management systems, are crucial to ensuring visibility in the supply chain and building a firm foundation for trust and collaboration, as well as an ability to be truly responsive.
Just in Time – Here to Stay
Just in Time has been one of the biggest changes to supply chain business models over the last 50+ years, and it is here to stay. With modern technology, JIT is more possible, safer, and less exposed to the risks of yesteryear. A thriving modern business needs to embrace this and therefore benefit from the increased efficiencies and thus, profit.
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- How to Successfully Ensure Just in Time Deliveries—And Why They Matter - February 22, 2017