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The term Just-in-time is used to describe the formula for scheduling deliveries of supplies to a production unit. The term “just enough resources” is used to calculate the exact number of human or material resources that can keep production going.
It is a strategy that involves inventory management and other factors like the market value of goods manufactured, commodities and inflation, financial services, etc.
It promotes lean methodology designed to increase efficiency, decrease waste, and cut costs. It requires businesses to be extremely agile to handle short production cycles.
A perfect JIT can be achieved when the difference between the amount required and the available to meet a production quote, is zero. All the backup resources that push the plant over zero are considered waste.
A JIT plant cannot manage the workforce more for the peak production requirement. It brings up a temporary employee to bring the number of workers to the required level.
Such inventory lowers the holding costs by buying or producing at short notice, to restrict unsold inventory from taking up valuable warehouse space.
Some of the pros/cons of such systems are –
It can improve cash flow as the expense of storage/ warehouse is reduced. Since the inventory level depends on customer demand, the risk of unwanted stock in the warehouse is less.
There are certain drawbacks of such systems, where the customer order may not be fulfilled on time due to the unavailability of stock / raw material in store for production.
The production units are based on demand forecasts, and accuracy in the calculation is required to restrict losses, on the other hand, if the supplies are bought as demand increases, price shocks can lower overall profits.
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