Optimising Inventory Management – Just In Time

Posted on May 26, 2015 by ATB Chartered Accountants

In an attempt to maximise efficiency and minimise costs, Just In Time (JIT) inventory management allows for these key business strategies to become a reality. The overarching concept of JIT is simple. With a JIT approach, when an inventory item is needed, it is delivered. Unlike other inventory systems where the item is delivered weeks or months in advance and it is held in a warehouse until there is a demand for that product.

A JIT approach functions with low inventory levels. The inventory is solely allocated from a supplier when needed for production or sale. This means orders are placed in smaller batches, on a more frequent basis. This keeps on-site inventory at a minimum. These conditions are favourable for looking into your company’s processes.

The JIT inventory management approach is detailed and interactive. With up-to-date information, this system can highlight performance inadequacies. In turn, it can help streamline these processes and the overall cost of inventory is reduced significantly. As this cost reduces, your working capital can be allocated elsewhere.

There are ample benefits in the application of a JIT inventory management system. With a high turnover rate, less inventory is needed. When less inventory is needed, your company requires less cash invested in its inventory. Often with large amounts of inventory, there is a greater risk of damaging goods while they are being stored.

With JIT, the risk of damaged inventory decreases. Goods spend less time in the warehouse and therefore are subjected to less damage. When production with supply and demand becomes streamlined, there is often a diminishing need for large warehouses. Additionally, production flaws and defected supply is often recognised faster in these small, frequent shipments.

However, JIT inventory management has disadvantages alongside the benefits. When operating on minimal inventory levels, there is an increased potential for out-of-stock scenarios. To successfully achieve a JIT system, all components of the production and allocation need to be seamless. It requires an immense level of coordination.

Without reliable suppliers and dependable quality of goods, this system would be redundant. It also demands a very quick turnaround. Ideally, suppliers would be in close proximity to the company, guaranteeing quicker deliveries.

Fortunately, the coordination of all these components becomes very feasible with the right technology. Computerised software and tracking systems make JIT inventory management a viable implementation. A cloud-based inventory would allow for up-to-date information about company and supplier stocks. It is vital to have the right computerised systems, in order to communicate and coordinate your supply and demand.

It is not an instantaneous switch to JIT inventory management. However, the amount of time to adopt these processes has greatly diminished. The necessary software has already been established. Proper tracking software provides you with the foundations of JIT inventory. Tracking can unveil the speed at which a part travels through the production process. This allows you to optimise your inventory management system.

Ultimately, JIT relies on the fundamentals of being able to accurately forecast the demand. Such precise inventory management will allow for these measurements. This type of inventory management can provide a competitive advantage, where you only order what is needed and, in turn, significantly cut costs. With the right software to manage your inventory efficiently, the JIT system can be very achievable for inventory management.

The content in this article was generously provided by Unleashed Software.

This article is provided by a guest blogger as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.