Just-in-Time (JIT) Inventory Explained

No matter your industry or the product you sell, a warehouse of unsold products costs you money. Everyday your inventory stays there unsold, you lose money in a variety of ways. Let’s start with the storage fees, taxes, opportunity cost, insurance, and employee costs. These inventory carrying costs can add up and significantly erode your profit margins.

Discussions about business innovation are often limited to product enhancements, but what about process innovation to prevent issues like this? An example of a process that does just this is the just-in-time (JIT) inventory method.

Read on as we explain what just-in-time inventory management entails, its benefits and disadvantages, and how Extensiv can help you implement it.

In other words, goods are made according to demand to reduce lead times. Customer orders trigger requests for new products, which are delivered just before they are needed. Because of this, JIT depends on accurate demand forecasting and planning, precise timing, solid supplier relationships, and efficient supply chain management.   

Real World Examples of JIT Inventory Management in Action

Zara

On average, Zara releases new designs every 2 weeks, while most of its competitors do every 10 to 14 weeks. This speed is made possible through Zara’s supply chain strategy built around JIT inventory to minimize waste and drive efficiency in their production process.

Unlike conventional fashion retailers that manufacture and store a large quantity of items in warehouses, Zara makes products in limited production runs and sends them straight to their brick-and-mortar stores. This keeps products from going unsold for long periods and creates a sense of urgency for shoppers since the items they see now won’t be around for long.

Motorola

Motorola shows how just-in-time inventory can improve efficiency and reliability in an industry that’s especially sensitive to supply chain disruptions. They implemented a program to handle shortages in three ways: expediting, transferring, or rerouting parts.

Adopting a “zero latency” strategy for inventory, Motorola was able to reduce shortages, control expediting expenses, and decrease the amount of time required to address inventory issues from weeks to hours.

Apple

Apple’s JIT inventory management allows them to balance production with consumer demand to minimize waste, boost operational efficiency, and reduce holding costs. Apple relies on advanced technologies like data analytics and automation for demand forecasting and real-time inventory monitoring to avoid challenges like stockouts and overstocking.

At their retail stores, Apple maintains low inventory levels and uses online order fulfillment for flexibility. Apple’s supplier relationships are also very solid, which promotes their supply chain efficiency and minimizes risks. All of this contributes to Apple’s success and dominance in the market.

JIT Inventory Management Best Practices

You need a solid strategy to get the most out of just-in-time inventory management. Below are some best practices for implementing the JIT inventory method:

Use Technology for Real-time Visibility

To successfully implement JIT, you need accurate, real-time data on inventory levels, customer demand, and supplier performance. Technology is the key. With the right inventory management software, you can easily monitor your inventory and automate reordering.

Additionally, demand forecasting tools can help you predict inventory needs accurately so you don’t have to guess what’s in stock or when you need to restock. You should also integrate your technology stack with your suppliers’ and order fulfillment partners’ systems for end-to-end visibility over your inventory levels.

Maintain Good Partner Relationships

A JIT inventory system relies on strong partnerships and integrated logistics management. Here’s a brief to-do list to streamline your relationships:

• Work closely with reliable suppliers to ensure they meet your production schedules.
• Partner with reputable transportation companies and third-party logistics (3PL) providers to ensure timely delivery.
• Choose strategic locations for your warehouses close to your customers to minimize shipping times—especially if outsourcing order fulfillment.
• Pay attention to setting up agreements or contracts that will give your orders higher priority during peak demand periods.
• Ensure you establish clear communication channels with partners to stay updated on the supply chain process.
• Negotiate long-term contracts that include key performance indicators (KPIs) and keep track of their metrics to make sure your partners are keeping to their end of the deal.
• Work collaboratively on demand forecasts and production schedules to ensure timely delivery.

Focus on Accurate Forecasting

The key to JIT is knowing exactly how much stock you need. Pick the tools that can help you forecast demand accurately and stay on top of sales and market trends. Analyze your sales history to know when your peak periods happen and how your customers purchase your products. This way, you can avoid excess stock or understocking.

You can also use predictive analytics, artificial intelligence (AI), and machine learning to simulate different scenarios like seasonal fluctuations or sudden market changes. This will help you foresee unexpected demands and prepare you for what is to come. You should also regularly update your forecasts with the latest data to stay up-to-date.

Anticipate Risks & Disruptions

JIT inventory management gives you little room for error, so having a backup plan is important. Anticipate risks like supplier delays or transportation problems and come up with contingency plans and a response plan for unexpected delays or demand spikes.

For instance, you shouldn’t rely on just one supplier or logistics provider; build a roster of other options that can fill in if your main supplier is unavailable. You should also keep a small amount of emergency or safety stock for when suppliers can’t meet unexpected demand spikes.

Encourage Cross-Functional Collaboration

The JIT inventory method requires alignment across different departments, including procurement, production, and sales. Share real-time data between teams using a unified system to encourage collaboration between departments. This will keep them informed on all important business and supply chain conditions so no one’s ever left in the dark. You should also train your employees on JIT principles to let them know their roles in the process.

Conduct regular meetings to align production schedules with sales forecasts and to evaluate your system to know what works and what needs improvement. This will allow you to assess your performance over time and make necessary adjustments to improve outcomes.   

Streamline Your Inventory Management with Extensiv

The main ingredient for just-in-time inventory is accurate, real-time inventory control. But trying to run a JIT inventory system without the right tools puts you at risk of stockouts, delays, inefficiencies, and a lot of headaches.

This is where Extensiv steps in:

Extensiv’s inventory management solution provides real-time inventory data, end-to-end visibility over stock levels across your entire supply chain, and automated stock reordering for unbeatable inventory control.

Plus, with Extensiv’s reporting and analytics dashboards, ecommerce brands can easily see the full picture of their business across all sales channels and broken down by product to understand their customer ordering patterns and forecast demand.

Extensiv gives you the tools and support you need to get JIT to work in your business. Simply put, our software works hard so you can too.

Book a demo today to learn more about Extensiv’s solutions for brands!