Just-In-Time Inventory System

What is a just-in-time (JIT) inventory system? What are the implications of JIT for firms that use foreign sourcing?

Organizations run smoothly because they have the required resources readily available. Resources such as raw materials should always be readily available for smooth running. Ordering inventory as needed helps companies lower their inventory carrying costs, increase efficiency, and decrease waste. JIT, also known as Lean manufacturing, originated in Toyota as Toyota Production Systems (TPS) in the 1960s. This philosophy has extended beyond manufacturing to include utilizing human resources and all other aspects of supply management and cost reduction.

The Just-In-Time (JIT) system is an inventory strategy that companies use to increase resource efficiency. It involves ordering and receiving inventory for production only as needed to produce goods. This system relies strongly on a fast and efficient network of suppliers. It is a positive cost-cutting management strategy that reduces non-essential costs. However, if not well managed, it can lead to stock-outs (John et al., 2018).

There are some pros and cons associated with this process. The advantages of the JIT system include faster turnaround stock, which saves funds and space that would be needed as a warehouse or storage space for the organization. In addition, JIT reduces wastage of goods and stock that could be damaged while in storage. Lastly, this system is the most ideal for small investments for firms opening in foreign countries or where funds are inadequate. It maintains a healthy and smooth cash flow.

Some of the disadvantages of the JIT system include the risk of running out of stock. Stock decisions based on forecasts can be incorrect, leading to shortages and unavailability on demand. Additionally, dependency on suppliers puts the company at risk of delaying goods and unmet customer demands, which can have severe implications. Lastly, the JIT is a very demanding system that requires companies to understand sales trends and plan in advance. Suppliers must also be followed up on to fulfill the requirements (Srinidhi and Tayi, 2004).

Inventory systems throughout the world have risks when it comes to inventory supply. The JIT system is designed to prevent companies from having overstock or running out of stock. Implementing JIT systems requires producers to be able to accurately forecast their demand to avoid running into material shortages (McGray et al., 1991).

References

John D. Daniels, Lee H. Radebaugh, & Daniel P. Sullivan. (2018), International Business- Environments Operations. ISBN.13: 978-0-134-20005-7. Pearson.

McCray G. E. and Clark T. D. Jr. (1999), Anticipating the Impacts of Outsourcing, System Dynamics Review; Volume 15.

Srinidhi B., Tayi G. K. (2004), Just in time or just in case? An explanatory model with informational and incentive effects, Journal of Manufacturing Technology Management.

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