Just In Time: an (almost) Stockless approach to inventory planning

Managing inventory well is a challenge for any business, especially in uncertain times when supply chain reliability is low and demand is volatile. The most typical example of this was during pandemic and post-pandemic times. In the early days of COVID and confinement, it is well known that demand for certain products – masks, flour and yeast, toilet rolls, etc – soared, leading to significant stockouts.

When the restrictions began to be lifted, the public’s appetite for outdoor exercise also grew strongly, and thus the demand for outdoor exercise equipment, such as bicycles, also increased. This boom however eased over time, leading to a bullwhip effect that resulted in a painful overstocked situation for many – with the associated costs that this entailed.

While the effects of the pandemic on the supply chain are now receding, supply chain disruptions – most recently, the Red Sea security crisis continue to have a major impact on companies’ operations and approach to inventory planning.

So, wouldn’t it be desirable to aim for zero stock and to have only the inventory necessary to meet demand? This is precisely what the Just In Time (JIT) method advocates. Although JIT has many benefits, it also has limitations and cannot be effectively implemented by every type of company.

What is Just In Time (JIT)

Let’s start by defining the concept. JIT logistics is a method of organising production whose objective is that supplies arrive at the factory at the exact moment (hence the name) when they are going to be used. In other words, the company receives the products it needs, in the exact quantity and at the right time to complete production.

This is, in theory, a perfect production model that should include not only the final assemblers but also their suppliers (Tier 1) and the suppliers’ suppliers (Tier 2) so that all actors in the chain are able to work without stocks.

How many days of stock do companies with JIT models have?

Companies working in real JIT operate on inventories that are less than one day’s stock. This means virtually zero stock. This has a number of advantages and disadvantages.

What are the advantages of Just in Time?

The main strength of a JIT model lies in the absence of stock. We avoid the need to have warehouse space to accumulate stock and avoid financing and storage costs. Based on a production schedule that is shared with all suppliers to provide broad visibility, assemblers are able to work without pre-stocking components and to receive them as they are needed.

What are the drawbacks of Just in Time?

The main limitation of JIT lies in the need for all suppliers to fulfil all plans. When a single supplier fails, this forces the rescheduling of lines, which affects the whole chain.

With this constraint, companies that opt for the JIT model include significant penalties in their contracts if a supplier fails to deliver the committed products at the right time. As a result of these penalties, what can happen is that all the stock saved by the assembler is transferred to the Tier 1 supplier, who accumulates it in order to avoid failing the assembler.

What are the main objectives of Just In Time?

Moving towards a JIT model is a strategic decision for the company as a whole. The objectives pursued in most cases are as follows:

Inventory reduction

The most distinctive feature of JIT is the minimisation of inventories. Production and component supply are coordinated so that materials arrive just in time to be used in final production.

Continuous production

JIT promotes continuous and uninterrupted production. This is achieved by eliminating bottlenecks in the supply chain and maintaining a constant flow of work.

Quality as a priority

Quality is essential in JIT. By producing in small batches and maintaining rigorous standards, the possibility of defects is reduced, which in turn minimises rework and waste.

Flexibility and adaptability

Responsiveness to changes in demand and flexibility in production are fundamental to JIT. This is achieved by implementing systems that allow for rapid adjustments to manufacturing processes.

Just In Time’s vulnerability to supply chain disruptions

The fact that there is no safety stock means that when the supply chain fails, assembly lines have to be reprogrammed to accommodate component shortages or have to stop because the necessary parts and components are not available.

When I say ‘supply chain disruptions’, I’m talking about strikes – supplier or carrier strikes, road and sea shipment disruptions, etc. To protect against these problems, supplier facilities are often set up next to large factories working with the JIT model. In this way, constant journeys to the customer can be organised, or goods can even be moved via conveyor belts that enter the customer’s own factories from the supplier. This greatly speeds up the transfer of components for the production of the final product.

Is Just In Time compatible with a high level of service?

The Just in time model is compatible with a high level of service as long as the manufacturer has sufficient power over its suppliers to ensure that the supplier never, or almost never, fails to deliver. In practice, this means that only a small number of companies – and large-sized ones at that – can really apply the JIT model.

In which sectors can the Just in Time model be feasible?

The JIT model is mainly used in the automotive sector. Beyond this sector, it is also present in aeronautics and technology. Therefore, a car, an aeroplane or a video game console are products that could be manufactured using a Just In Time model.

How does Just In Time affect supplier relations?

Just In Time always has different edges when it comes to supplier relations.

For the customer, JIT is an incentive to improve their level of supply chain scheduling and to improve visibility throughout the supply chain.

For the supplier this is a great opportunity to improve their processes and tighten their supply chain, but in practice it is also a difficult commitment to the customer, requiring them to deliver near-perfect service levels in an environment where they do not always have all the tools to achieve this.

What is required to move towards a Just in Time model?

In any environment, moving towards JIT is a very laborious process and requires the involvement of the entire company and the conviction of top management.

First and foremost we have to think that moving towards a JIT environment is a transformation that does not only involve JIT, but also all the principles of Lean Manufacturing: moving from a push to a pull model, working in a 5S environment (Sort, Straighten, Shine, Standardize, and Sustain), working to avoid the 8 forms of waste, respect for people and continuous improvement.

In addition to this change, a new management system must be adopted, one that provides visibility to all actors over the entire chain. This is what’s achieved with the supply chain control towers.