- Just in time is a 'pull' system of production, so actual orders provide a signal for when a product should be manufactured.
- Demand-pull enables a firm to produce only what is required, in the correct quantity at the correct time.
- This means that the stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum.
This requires a carefully planned scheduling and flow of resources through the production process. Modern manufacturing firms use sophisticated production scheduling software to plan production for each period of time, which includes ordering the correct stock.
Information is exchanged with suppliers and customers through EDI (Electronic Data Interchange) to help ensure that every detail is correct.
Supplies are delivered right to the production line only when they are needed.
Advantages of JIT
1. Lower stock holding means a reduction in storage space which saves rent and insurance costs.
2. As stock is only obtained when it is needed, less working capital is tied up in stock.
3. There is less likelihood of stock perishing, becoming obsolete or out of date.
4. Avoids the build up of unsold finished product that can occur with sudden changes in demand.
5. Less time is spent on checking and re-working the product of others as the emphasis is on getting the work right the first time.
Disadvantages of JIT
1. There is little room for mistakes as minimal stock is kept for re-working faulty product.
2. Production is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed.
3. Little spare finished product available to meet unexpected orders, because all product is made to meet actual orders - however, JIT is a very responsive method of production.