Just In Time (JIT) has been referred to as an inventory control system in which inventory is purchased only as needed to meet actual customer demand. It is said to be a demand-driven inventory system designed to reduce inventory carrying costs to the lowest possible working levels. In practice, JIT is more of a holistic management system aimed at reducing waste, maximizing cost efficiency, and securing a competitive advantage.
This concept was originally developed in Japan in the mid-1970s by the Toyota Motor Corporation. In fact, many firms continue to refer to JIT as the Toyota system. The concept emphasized the avoidance of waste (of materials, space, and labor). The JIT concept traditionally used by manufacturing firms has expanded to the merchandising environment. On line retail marketers of all sizes are able to stay competitive by employing this strategy.
A very important component of the JIT strategy is the supply chain management. A firm cannot implement a JIT system by itself; it must have the complete cooperation of its entire supply chain. The sheer amount of information that is needed for a JIT system to operate well demands partnerships to be formed and nurtured, almost to the point at which an entire supply chain operates as one firm.
Several advantages derive from its use, the most apparent being the reduction in carrying cost of inventory, the bulk of which is warehousing cost. Inventory cost and quantity are grossly reduced especially for the manufacturer who would usually maintain three classes of inventories: raw material, work in progress, and finished goods. Funds that were tied up in inventories can be used elsewhere, and space previously used, to store inventory can be put to other more productive uses.
The JIT model is a major enabler to Internet merchandising where even the smallest of sellers who does not have enough capital to keep unusually large of amount of inventory can meet clients needs within the time lag of order and delivery date.For the manufacturer, experts argue that the presence of inventories encourages inefficient and sloppy work, which in turn results in too many defects, while dramatically increasing the amount of time required to complete a product. They maintain that with JIT, defect rates are reduced, resulting in less waste and greater customer satisfaction. Because it applies a 'pull approach,' which means inventory is ordered on demand, the company is more responsive to short-term customer demand patterns.
One disadvantage of the JIT is the strong interdependence within members of the supply chain , because a weakness in the supply chain can be very costly to all linked to it. Businesses become vulnerable to the supply chain in emergency situations like interrupted supply lines, stock outs and unforeseen production interruptions. The entire supply chain is quickly disrupted. Technology plays a key role in JIT because of the need for excellent communication, however the reliance on technology can lead to breakdowns in the IT systems that can be extremely costly to the business.
It is obvious that because of the great benefits of JIT, which far outweigh its disadvantages, more companies of varying size have adopted it. Responsibility is placed on the users to reduce the risks associated with the failure of the supply chain management and information technology systems.
Sources
http://www.referenceforbusiness.com/management/Int-Loc/Lean-Manufacturing-and-Just-in-Time-Production.html
http://www.academicmind.com/unpublishedpapers/business/operationsmanagement/2005-04-000aaf-just-in-time-inventory-management.html
http://www.accountingformanagement.com/just_in_time.htm#Disadvantages of Just in Time Manufacturing System:
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