JIT Inventory Management Strategy

JIT Inventory Management Strategy

Implementing a Just-in-Time (JIT) inventory management strategy seems to be the latest hot topic in the business world, particularly in manufacturing industries. In today’s competitive supply chain environment, more and more companies are either adopting JIT methodology or at least beginning to research and understand how JIT would affect their business. But what exactly is JIT? Many companies may be already putting into practice some of the concepts of JIT - such as looking at always improving or trying to reduce waste in terms of product or labor steps. Some companies may be fully ready to embrace a JIT operating process, yet perhaps JIT is not the best choice for their business. The goal of this chapter is to develop a better understanding of JIT, from this history behind its inception to the various risks and benefits that relate to adopting JIT from an interdisciplinary/strategic approach from a transdisciplinary viewpoint. Those strategies, which include the basic methods of Minimum Stock, Economic Order Quantity (EOQ), and Safety Stock methods are explored and explained in this chapter.

Growth of JIT Technologies

The idea of a JIT production system was invented as a way for a small Japanese car company to better compete in large firm environment. JIT is commonly coined the Toyota Production System (TPS) because of its founding company. In the early to mid-1900s, car manufactures were utilizing Henry Ford’s production line to mass produce vehicles and create economies of scale. The idea of this was to make enough cars for everyone while keeping costs low enough that everyone could buy one. However, this mass production led to Ford creating little variety in their fleet of vehicles. The famous Henry Ford quote, “you can have any color you want as long as it is black,” is a good descriptor of this limitation. TPS was partly founded by Taiichi Ohno, who found that one of the flaws of western production systems was “the inability to accommodate consumer preferences for product diversity” (Holweg, 2006, p. 422). Holweg states that the Western production system lead to high volumes of inventory that presented capital and warehousing challenges. In addition to limited consumer preference and high inventories, the Japanese culture and economy presented issues with production at the time. Japan has high cost of raw materials (due to location), which makes it essential to eliminate any waste in production, their employees were highly skilled due to their education and daily culture was revolved around work; this caused high wages, lifetime employment, and labor unions. This highly skilled workforce was not considered a bad attribute, but one that needed to be optimized (i.e. eliminated of wasteful actions) (Sugimori, Kusunoki, Cho, & Uchikawa, 1977).

In order to combat these hurdles, Toyota’s management created a system that attempted to mimic Western-style approaches to inventory production by creating economies of scale, but producing small-batch volumes. The aim of the process was to “produce the necessary parts at the necessary time and have on hand only the minimum stock necessary to hold the process together” (Sugimori et al., 1977, p. 555). Through the implementation of the JIT method, multiple well known management techniques were utilized and founded. For instance, the JIT method called for level production so that different car types would be produced instead of just one. JIT helped invent the Kanban system, which is used to control the JIT process and optimize worker activities. The Kanban helps create a lean production system that eliminates waste in all aspects of the operation. Lastly, JIT uses a pull system which was different from the western manufacturing at the time. In a pull system, “the following process withdraw[s] the parts from the preceding process” (Sugimori et al., 1977, p. 556). Normal procedure would push finished parts onto the next step in the production; thus creating excess inventory.