Just-In-Time Inventory Management: What It Is and How Your Business Benefits
Just-in-time inventory management is a strategy businesses employ to improve their efficiency and optimize their workflow.
Just-in-time relies on the principle of only having enough inventory on hand to meet current demands, thus eliminating the need for excess stock that takes up space and ties up working capital.
By stocking only what is needed, just-in-time minimizes waste and boosts profits. Read on to find out how your business can benefit from implementing a just-in-time system.
What is Just-in-Time Inventory?
Just-in-time inventory is a lean manufacturing technique that eCommerce businesses can use to streamline their operations.
The idea is to only order inventory as needed rather than stockpiling items in a warehouse.
This way, businesses can save on storage costs and avoid having outdated products taking up space.
Just-in-time also helps eCommerce businesses be more responsive to customer demand, as they can quickly adjust their inventory levels based on what’s selling.
While just-in-time can be a great way to improve eCommerce operations, it’s essential to clearly understand how it works before implementing it. Otherwise, your business may struggle to keep up with customer demand.
How Does Just-in-Time Inventory work?
Imagine you’re running an eCommerce business. You just had your best month, and you’ve got a massive influx of orders to fulfill. But there’s a problem: you don’t have enough inventory on hand to meet the demand. What do you do?
If you’re using just-in-time inventory management, you’ll have a system to quickly and efficiently restock your shelves.
Just-in-time inventory is a system that allows businesses to order inventory only as needed, rather than holding significant stock. This approach has several benefits, including reducing storage costs, minimizing the risk of inventory obsolescence, and freeing up cash flow.
Just-in-time inventory systems are highly efficient but require careful planning and execution.
Businesses need to understand their sales patterns well and anticipate spikes in demand.
They also need to build strong relationships with suppliers and vendors to ensure that inventory can be delivered quickly when needed.
When done correctly, just-in-time can be a powerful tool for managing eCommerce inventory.
What are the Advantages?
There are several advantages to using just-in-time inventory management.
First, it can help to reduce warehousing and storage costs. Your business only needs to keep enough inventory on hand to meet your immediate needs.
Second, it can lead to improved cash flow. With this model, your business only ties up money in inventory when you need it.
Finally, just-in-time can help businesses respond more quickly to changes in consumer demand, as they are not beholden to large quantities of inventory that might become outdated or obsolete.
In today’s fast-moving economy, being agile and responsive is increasingly important, making just-in-time inventory a valuable tool for many businesses.
Some of the most significant benefits of just-in-time inventory include:
- Reduce wastage
- Reduce dead stock and obsolete inventory
- Improve efficiencies
- Minimize your raw materials on hand
- Increase productivity
- Reduce defective product loss
- Optimize production
- Reduce costs
- Improve quality
- Flexible inventory
- Free up cash
- Lower holding costs
- Reduce labor costs
- Faster product turnaround
- Shorter production cycles
What are the Disadvantages?
There’s no question that just-in-time Inventory has transformed the business world, allowing companies to operate more efficiently than ever before. However, some drawbacks to this system should be considered before you consider implementing it for your business.
One of the most significant disadvantages is that Just-in-time Inventory requires a high level of coordination between different departments within a company. This can be difficult to achieve, and if one department is not working as planned, it can throw off the entire system.
In addition, Just-in-time Inventory can lead to stockouts if suppliers cannot meet demand. This model is highly dependent on the suppliers’ performance and timeliness.
This can be a significant problem for businesses relying on just-in-time inventory, leading to lost sales and frustrated customers.
Additionally, the required shipping back and forth between supplier, manufacturer, and customer can harm the environment due to increased packaging and the use of fossil fuels.
Ultimately, while just-in-time Inventory has many advantages, it also has some significant disadvantages that should be considered before implementation.
Businesses That Should use Just-in-Time Inventory
Businesses that are most likely to benefit from just-in-time inventory include regular sales and perishable stock and closely watch their cash flow.
Other types of businesses that can benefit from just-in-time inventory include manufacturers, who can reduce the cost of raw materials by only ordering what is needed to meet current production demands, and distributors, who can avoid the cost of storing and shipping excess inventory.
Any business that incurs significant costs associated with storing inventory can benefit from using just-in-time inventory.
This strategy can be especially beneficial for businesses whose inventory sits for long periods. Certain businesses, such as those listed below, may find that just-in-time inventory can lower their costs and create a more streamlined process.
Florists
Because flowers have a limited shelf-life before they become unsellable, so just-in-time inventory slashes wasted stock and allow florists to keep up with seasonal and popular trends.
Bookstores
Just-in-time inventory helps booksellers respond to consumer trends, especially during busy and holiday seasons, and keep the latest best sellers and BookTok favorites in stock.
Bike and Automotive Repair
Keeping parts for multiple makes and models of cars or bikes in stock requires a massive supply of stock. With just-in-time inventory, shops can keep high-demand items in stock and order additional parts as needed.
Cafes and Coffee Shops
Purchasing your coffee grounds and beans in small quantities means fresher-tasting coffee for your customers.
Businesses That Should Avoid Just-in-Time Inventory
There are many reasons why businesses might choose to avoid just-in-time inventory.
For one, businesses that operate in highly unpredictable or rapidly changing environments may find that just-in-time inventory is too risky.
Businesses that rely heavily on seasonal products may find it difficult to maintain sufficient inventory levels using just-in-time methods.
Finally, businesses with low-profit margins may find that the high costs associated with just-in-time inventory are simply not worth it. Generally, companies operating in volatile or seasonal industries should think twice before adopting just-in-time inventory methods.
While just-in-time inventory can be effective for many businesses, it is not a good fit.
Below you’ll find some business categories that may not benefit from this inventory management strategy.
Businesses That Source Their Products or Materials From International Suppliers
If your business frequently orders stock or materials internationally, just-in-time inventory can be stressful due to long lead times.
Lower Volume Sellers
Just-in-time inventory is generally more effective for businesses with fast-moving inventory.
Businesses That Can’t Accurately Predict Customer Demand
If your business is not effectively tracking your customer demand and anticipating your inventory needs, just-in-time inventory is probably not a good fit.
How Your Small Business Can Implement Just-in-Time Inventory
Just-in-time inventory management is a popular approach for small businesses, as it can help to save on storage costs and reduce the risk of inventory obsolescence. Implementing just-in-time requires careful planning and coordination with suppliers, but the rewards can be significant.
For your business to implement a just-in-time inventory approach, you must ensure your business is a good match.
Before your small business decides to get started with just-in-time inventory, it’s essential to consider the following:
- How much turnaround time does your business need between the time you receive your products or materials and when you can get those products out the door to your customers?
- How will you accurately track your customers’ demand?
- What kind of software system will you use for reordering stock so that you only order the quantities you need?
- How dependable are your vendors? Can they reliably deliver your inventory when you need it?
- What will you do in the case of supply chain disruptions?
With this in mind, your small business can reap the benefits of just-in-time inventory, including reduced costs and improved operational efficiency.
Final Thoughts
Simply put, just-in-time inventory is a management system that strives to eliminate waste and stockouts. By having a steady flow of goods coming in and going out, the business avoids tying up money in inventory and can focus on more critical tasks.
While there are some disadvantages to using JIT, such as the need for careful planning and the potential increase in transportation costs, the advantages typically outweigh them.
If you’re looking for a way to streamline your inventory process and improve your bottom line, then implementing just-in-time inventory may be suitable for your company.