Just in Time Inventory Methods

Just in Time Inventory Methods Assessing the Benefits and Problems of Just in Time Inventory Methods The use of Just-in-Time (JIT) inventory management in industries known for exceptionally rapid product lifecycles and a high amount of inventory turns necessary for profitability have popularized this technique for managing supply chains. There are inherent risks in JIT including too heavy of a reliance on one supplier, the high costs of errors when supply chain systems and processes are not aligned and integrated and when JIT inventory calculations are inaccurate.

The intent of this analysis is to evaluate the benefits and problems of JIT production planning from a CEO's perspective. Making a Case for JIT In high tech, semiconductor, consumer electronics and distribution-based businesses where inventory turns are critical for profitability to be attained, JIT is essential. Those industries that rely heavily Return on Invested Capital (ROIC) including auto manufacturing also have built entire supply networks predicated on JIT, including the Toyota Production System (TPS) (Amasaka, Sakai, 2009).

The integration of quality management functions into JIT by Toyota has since been replicated by Dell, HP, IBM, Lucent, and many other corporations (Parveen, Rao, 2009). For the CEO of a company in these industries that rely on rapid inventory turns for their financial stability and growth, adopting JIT is required for competitive parity to the industry. The benefits of using this approach to inventory management also include the sharing of risk with suppliers when Vendor Management Inventory (VMI) is supported as a distribution strategy (Song, Dinwoodie, 2008).

All of these factors combined also provide companies relying on JIT with a minimal amount of wasted inventory and reduction of unnecessary costs while increasing the ability to respond more rapidly to customers' needs (Epps, 1995). In addition to the high level of dependence on single supplier JIT also can create a bullwhip effect if demand is not accurately predicted (Ouyang, Li, 2010).

Despite these limitations however in those industries that require rapid inventory turns and often have lower product margins, manufacturers are forced to rely on JIT as a strategy for keeping costs down and driving up inventory management efficiency.

The Liabilities of JIT Considering the fact that manufacturers are often engaged in a variety of business models at once, any CEO of one of these companies would need to contemplate what while JIT me be excellent for the make-to-stock productions strategies, it would potentially be problematic for its build-to-order and mass customization strategies as well (Song, Dinwoodie, 2008). The innate uncertainty of mass customization strategies makes JIT as a strategy very difficult to manage to optimal performance levels.

Adding in the fact that often supplier relationships in many manufacturers lack the real-time system and process integration achieved by Toyota with their TPS system (Amasaka, Sakai, 2009) just amplifies for many companies the losses that happen from a lack of integration. Conclusion JIT as a manufacturing strategy has to be selectively applied to only those manufacturing strategies that can benefit most from them. The use of JIT in make-to-stock manufacturing-based companies where demand is relatively predictable can alleviate the bullwhip effect that lack of demand visibility causes (Ouyang, Li, 2010).

JIT is also a foundational.