Just in time logistics
Just-in-Time Logistics: Is it Right for Your Company?
The art of running a business consists in balancing your costs with your revenue. These two factors constantly change, requiring a dynamic response from business owners, executives, and managers. Whether it’s increasing revenue with better value products and sales or cutting operating costs and rent, your business needs to find reliable ways to increase profits to succeed.
One clear way to increase profits is to streamline your shipping and ordering process. Well-oiled procedures can keep shipping costs down and inventories at stable levels. One trending way to cut costs and increase efficiency is the “Just-in-time” (JIT) inventory strategy.
Just-in-time logistics promises to minimize shipping costs with precise ordering and sales to match market trends. Experience with JIT inventory strategies shows that companies can experience major benefits, but there are some major risks as well. In this blog, we will explain the advantages and disadvantages of JIT logistics. You can use the information here to see if just-in-time practices will work for you.
What Does Just-in-Time Mean?
JIT logistics assumes that an item left in inventory is a waste of money. That means companies manufacture, transport, and store goods only as needed for immediate sale. Ideally, businesses should have small to non-existent inventories with proper JIT procedures in place. The ultimate goal is to provide products and services only as much as the customer demands them.
How Does Just-in-Time Work?
Firms that don’t use JIT strategies usually produce products and then rely on their marketing products to sell their goods. This strategy is the old standby, you manage the flow of raw materials and retail ready products based on future sales expectations. Just-in-time logistics requires firms try to time their flow of raw materials and retail ready products to coincide with consumer demands. Instead of producing and hoping for buyers, companies provide goods and services when consumers demand them. This eliminates over-production, while minimizing costs.
JIT requires constant communication between all elements of the different companies within the supply chain. Customer-facing businesses need to tell their suppliers when they need goods to keep up with customer demand.
Application in Shipping and Warehousing
Specifically for warehousing, JIT strategies mean goods spend as little time in the warehouse as possible. Products move towards the customer in smaller loads, but more often as demand fluctuates. The constant movement within the supply chain means the warehouse needs to streamline off and on-loading, as well as organizing items to maximize efficiency.
The Advantages of Just-in-Time Inventories
Businesses who use JIT strategies can see major gains in profits as costs go down. JIT logistics can help increase efficiency in a variety of ways.
- Reduction of Inventory Costs: Higher inventories cause more costs than over-production. They take more money to maintain. Perishable goods can spoil and inventories will take up needed space. Smaller inventories allow warehouse space to better meet retail needs.
- More Growth Opportunities: With lower costs due to less production and maintenance costs, your business can afford to invest more in growth. You can use new found profits to expand operations to new markets or train employees in different tasks. As a result, you become more competitive in the long-run.
- Happier Customers: Just-in-time strategies are inherently customer oriented. JIT inventories force companies to respond more to customer needs. Flexible businesses can adapt to new business trends and get popular products to their customers faster than before.
The Disadvantages of Just-in-Time Strategies
While just-in-time strategies offer major benefits to companies and consumers, they also come with costs. JIT logistics exposes companies to specific risks and challenges.
- Resource Intensive– JIT procedures require constant coordination with every stage of production, transportation, and sale. Your company needs capable computer programs and software, as well as industry contacts in order to make JIT strategies work. This naturally favours larger companies with more resources to invest.
- Many Moving Parts– Your company becomes intertwined with several other companies in order to work. If a company has a production shortfall, a strike which halts transportation, or a storm which slows down sales, then every company in the supply chain suffers. Higher inventories, on the other hand, can help prevent these types of problems.
- High Risk: If a company does suffer from a supply chain disruption, then the consequences can be massive. During the Japanese earthquake on March 2011, several companies temporarily slowed or shut down operations because they could not receive needed parts. Nearly 25% of the world’s silicon production halted as well. While this is an extreme example, it illustrates the risks of JIT.
Is Just-in-Time Right For You?
Despite the risks of JIT inventory management, companies need these techniques in order to stay competitive. Far-flung markets and globalization give companies more opportunities if they use the increased capacity and speed of JIT strategies. You can minimize the risky nature of this business practices with proper contingency planning that keeps your company going during a supply-shock.
At Arpac, we believe that JIT inventory practices can give your company a competitive edge. However, you should balance the benefits with the potential risk. Use our guide to evaluate whether your business is ready for just-in-time inventory management. Contact us at 1-800-946-8511 or visit our website for more information.