Just-In-Time Inventory System

Introduction

The just-in-time (JIT) inventory system was developed in Japan after World War II, in an effort to control costs during fiscally challenging economic times (Waguespack and Cantor, 1996). The challenge that faced many Japanese companies in the post-War era was to find a way to meet the needs of customers and businesses while utilizing as few resources and as little capital as possible. The Japanese developed these set of techniques in order to control production, limit unnecessary products and reinvest the valuable capital left from the savings back into the business structure (Waguespack and Cantor, 1996). Much of the success of many Japanese corporations over the past four or five decades has been was linked to the principles of JIT (Chhikara and Weiss, 1995).

Premise for JIT

The basic premise for JIT is fairly simple: a company only produces an item when there is a need, or just-in-time for a company or individual to purchase it (Manoocherhi, 1988). The theory of JIT also accepts that there may be a need for an item at another work station and this would also create the need for production. Rather than utilizing the common practice of mass production and attempting to sell and distribute the products after they are created, JIT waits until there is a defined need that must be met. By doing this, JIT systems allow companies to decrease the level of production, decrease the necessary manpower hours utilized in mass production modes of supply, and eliminates the waste inherent in over-production. These techniques are especially effective for small companies, who are far less able to absorb the impact of unsold products. JIT has been shown to significantly impact reductions in overhead costs that reduce re-investments, and encourage stabilizing business practices(Manoocherhi, 1988).

JIT Utilization

In order to relate the most comprehensive picture of the effects of JIT, it is necessary to look at the way in which businesses utilize JIT systems. JIT has also developed an off-shoot theory called JIT II, and information and comparison of these two differing structures will be presented.

One example of the utilization of JIT principles has been within the business operations of oil refiners. The push to reduce inventory costs has led oil refiners to develop JIT techniques within their process (Waguespack and Cantor, 1996). Rather than carrying the cost of over production and storage of oil, the refiners have chosen to utilize JIT principles and only produce what is needed to meet the day to day requirements of supply. Although this example has caused much concern within the oil industry because of the sharp decline in oil inventories, the long-term effects of utilizing these techniques could sharply reduce the price of oil (Waguespack and Cantor, 1996).

Another example is the use of JIT structures in Japanese companies currently developing business structures in the United States. The auto industry is one area that could significantly benefit from the limited production methods of JIT and current Japanese companies are utilizing these techniques to better compete with American auto makers. The results of JIT are not simply realized in the push towards lowering overhead, but they also incorporate the system of re-investment, that increase business capital, and create more stable business operations.

JIT Principals

The JIT principles in larger companies effectively link plant and floor operations in order to provide supplies for the product lines (Anonymous, 1996). In other words, JIT does not diminish the production of supplies necessary for the continued creation of additional products. If a company creates radios, for example, they may also create a number of the intricate mechanical parts necessary for the creation of the final product. The utilization of JIT systems recognizes the continual need to address supply issues with the company structure in order to fulfill the order requirements necessary to successful complete the JIT cycle (Anonymous, 1996). This link between pant and floor operations is one of the basic premises of JIT operations.

Critics have argued that the financial gains of JIT systems are limited because of the lack of focus on the financing and operational decisions necessary for this system to succeed. Chhikara and Weiss visited and OEM (Original Equipment Manufacturer) supplier and recognized the changes implemented under JIT systems (1995). The representative from the company explained that empty inventory shelves were a direct result of the newly implemented system and that the company currently does not hold more than a days worth of goods at any one time. The representative was also clear to explain that the company now machines parts in smaller batches, and though this may appear to effect the cost savings of the process because of the additional expenses incurred by frequent setups, this cost was more than offset by the reduction in inventory holdings (Chhikara and Weiss, 1995). This is a basic belief under the JIT systems, though