Glossary
Just-in-Time (JIT) Inventory
Just-in-Time (JIT) inventory is a strategy where businesses seek to reduce inventory costs by receiving goods only when they are required for production or sale. Instead of holding large stocks of raw materials or finished goods, companies use JIT. Companies maintain minimum inventory levels and depend on regular, small deliveries to meet demand.
The Origins of JIT
The JIT system was first developed and perfected by Toyota in the 1970s as part of its lean manufacturing strategy. The goal was to eliminate waste, reduce costs, and improve production efficiency. This approach allowed Toyota to produce vehicles with fewer resources and at a faster rate, giving them a competitive edge in the automotive industry.
Key Components of JIT
- Minimal Inventory: Businesses keep as small stock on hand as possible, reducing warehouse storage costs and minimizing waste.
- Frequent Deliveries: To maintain production or sales without delays, JIT systems count on timely and consistent delivery schedules.
- Close Supplier Relationships: JIT requires a strong partnership between businesses and warehouse logistics provider to ensure that materials arrive on time whenever needed.
- Demand Forecasting: Companies must accurately predict customer demand through demand forecasting to avoid stock outs, which could disrupt production or sales.
Related Glossary Terms
Active Stock
Active stock means the inventory that a business uses, refills, and moves around regularly. This stock includes items with a constant turnover rate, are consistently in demand, and require frequent restocking. Active stock differs from passive or inactive stock, including items that move slowly or are rarely used.
ABC System
A cost management system that tracks financial and operational data on resources, activities, drivers, and measures. ABC models are created and maintained within this system.
ABC Model
In cost management, a representation that illustrates the cost of resources used over a period and how these are consumed by activities and subsequently traced to products, services, or customers.