6. What is "just-in-time" inventory management? What are the characteristics? When does it work best? How does it compare to the American system? Problems?

Just-in-Time (JIT) inventory management is the process of ordering and receiving inventory for production and customer sales only as it is needed and not before. This means that the company does not hold safety stock and operates with low inventory levels. This strategy helps companies lower their inventory carrying costs.

Just-in-time inventory management is a cost-cutting inventory management strategy though it can lead to stockouts. The goal of JIT is to improve return on investment by reducing non-essential costs.

Just in time inventory systems (JIT) allow a company to evaluate their past performance and sales prevent inventory from sitting in the warehouse, which is a waste of resources. JIT systems help a company to evaluate what they need in order to meet the daily requirements of production while allowing for a smooth run time. There are benefits and problems with just in time inventory systems.

Benefits

• The main benefit of a just in time system is that it will eliminate waste and make the company more efficient. Many companies are able to do away with their warehouses and have more products that are complete and ready to ship or sell. Dell is one company that has implemented JIT systems. When a customer goes to the Dell website they will choose what options they want for their computer. The computer is then made to order. Dell has become very successful as one of the leading computer manufacturers. Dell is more efficient because it does not have computers that are waiting to be sold and becoming obsolete as technology advances.

Building Relationships

• A JIT system allows for better relationships with suppliers. Manufacturers will need to have a supplier that they can count on. Usually this will mean that one or two suppliers will gain the business of the company so when products are ordered it can be trusted that they will be received on time.

Productivity

• With more emphasis placed on finished goods, goals will increase, which in turn will increase productivity. Higher productivity means better employee involvement, less absenteeism and a better opportunity for rewards to be given when tasks are completed. Higher quality employees can perform more skilled tasks such as research instead of focusing all their time on inventory control.

Problems

Break in Supply

• JIT can be a problem because business have to depend on each other. The supplier depends on the manufacturer, the manufacturer depends on the supplier and the customer depends on both.

• The other main complication with just in time systems is when a product changes. If quality dictates that a product be altered in mid production the whole product will have to be thrown away and another one will be created from the beginning.

• Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes.

• Labor strikes, stock outs, and port lockouts can quickly disrupt an entire supply chain while JIT processes are in place.

• Every year markets experience seasonal demand fluctuations as well as fluctuations due to demand from disasters or other unforeseen events.

• poor communication with supply chain members

JIT in Practice 

Dell, which participates in the computer technology industry, is the only company within its industry that effectively utilizes just in time. They have "revolutionized the selling of personal computers, using a direct-business model that includes taking custom orders directly from customers, thereby reducing inventory and streamlining distribution". After Dell has received a customer order, they then begin production of the product that the customer desires. This exemplifies a pull system within the supply chain. A pull system is reactive whereby production is executed in response to a customer order. This unique supply chain provides Dell with a competitive advantage within its industry allowing them to become the market leader over Compaq in 2001 (DI D RECT, 2001). #

Dell's position within its industry is a result of their strategic focus to reduce inventory and streamline distribution.

This strategy provides Dell with a time-to-market advantage.

Dell's use of just in time results in cost savings, superior customer satisfaction, limited waste, and the ability to provide their suppliers with more information. In the end these benefits all result in a cost savings for Dell and higher revenue. Since Dell holds minimal inventory, they do not have to fund raw materials, work in process or finished goods inventory.

Toyota Motor Corporation is another company that effectively uses just in time. They are known as the "master and pioneer" of just in time and are currently entering the market to provide customized vehicles to customers with a minimal wait.

Toyota has developed its own software that connects dealers to factories and factories to suppliers. The integration of the value chain creates visibility for all members of Toyota's supply chain. When a request from a dealer is received by Toyota their "software is able to figure out the availability of parts nearby.

Toyota has also adjusted their distribution process to effectively provide customized vehicles in a just in time process. This process adjustment has provided Toyota with a cost savings in result.

Dell and Toyota are two model companies of just in time. They effectively get the right products to their customers when they need it. Both companies have achieved a competitive advantage within their industries due to utilizing the just in time process and allowing visibility between them and other members of the value chain.