The term just- in time (JIT) inventory comes from the manufacturing industry, where companies will stock up on products before they run out so that they do not have to order too much at one time. This is an efficient way to manage inventory as you do not need to stockpile large amounts of materials while there are still shortages.
For example, if your business does not have enough paper towels, it can buy a few more boxes and go through them quickly to make sure everyone gets some. By having extra supplies on hand, employees do not need to search for something or ask their colleagues for help which free up their time.
Manufacturing is a very expensive field due to all of the equipment needed to produce goods, so keeping excess supply is important to keep costs down. Running out of material causes additional expenses in reordering or buying more than what we have already!
Businesses with no stockpiles of merchandise risk running out of essential items, especially during peak seasons when demand rises. Plus, being overstocked could cause wasted space that could be used for new merchandise. It is best to prepare for worst cases by stocking up.
Types of JIATM
There are two main types of JIT inventory: direct store delivery and online shopping cart providers.
JIT improves company performance
According to an independent research study, companies that use just in time (JIT) inventory management systems save enough money every year to pay for the entire cost of their software!
That’s right — you get all of your returns from IMS back factory price. The average business saves over $500 each month with IMS, so it makes sense to invest.
Another way to look at it is that buying new equipment costs around 2% of sales, so by not having overhead, you’re saving another 2% per sale!
And remember, IMS doesn’t have to be expensive. You can create a free trial here to check out how easy it is to implement. It takes less than an hour, and there are lots of resources available online and through our community.
JIT reduces inventory
Having more of an empty stock can sometimes be a good thing, especially if you are trying to promote a new product or service. If your business does not have enough money in the coffers to buy all the supplies and equipment needed to run production, then it will need to prioritize which projects get funded.
By having less excess spending cash, your business will have to work harder to make sure that it has what it needs to operate efficiently. This is why there is a trend towards businesses using just-in-time (JIT) inventory management.
What is just-in-time inventory?
Just-in-time inventory means buying only what you need to fulfill an order at the time when the order is placed. This is different from pre-order inventory, where you overbuy because you expect to receive orders later.
Most companies use this system because it cuts down on wasted space due to unnecessary stockpiling. For example, if you ordered 10 pieces of furniture but only 5 were sold after the store was closed for winter, your warehouse may still contain the other five. It is wasting valuable room that could be used for something else!
However, with JIT, you do not keep these extra items unless and until they are actually put into use. This helps save lots of space and allows your business to stay within budget since you do not spend too much money when you do purchase things.
JIT encourages repeat customers
For example, let’s say your business sells printed t-shirts. You make them yourself and then you have to store all of the finished shirts in a dry place until they are good enough to sell.
This can be tricky because people usually want their shirt slightly less wet than when they got it!
If you don’t have space to hang up all these extra t-shirts, then you will probably end up selling very few t-shorts. And if you only sell a small amount of t-shirts, how will you stay in business?
Just like with food, people need to know that there won’t be anything bad happening to the t-shirt they wear today before they go shopping again tomorrow. This is why it is important for you as an entrepreneur to maintain an adequate supply of t-shirts – so that people feel comfortable buying one from you.
JIT reduces inventory turnover
The more times your business has to move something because you ran out of it, the less efficient it is. This can have disastrous effects on your company as well as the market it sells products to.
When your product sales drop due to low supply, people will begin buying alternatives that are available. If those substitutes contain too much junk or do not work properly, then this will hurt your sales even further.
In addition, if there is a shortage of your product, others may start producing their own versions, which could also be poor quality or wrong ones. All of these things cost your business money!
There are many ways companies use just in time (JIT) inventory management.
JIT increases customer satisfaction
When your business does not have enough inventory, you can’t fulfill orders or make money. This is particularly true for sellers that depend on repeat customers to survive.
Inventory is one of the biggest costs in running a business, which makes minimizing it important. Even small decreases in stock can save lots of money if you are able to shift to online shopping or supply chain strategies.
By doing this, however, you lose some degree of control over when and how much inventory you have. This can be frustrating as well as expensive if you run out of product and need to order more!
Luckily, there are ways to use just-in-time (JIT) inventory management to improve your business. Here, we will discuss why and what tools exist to help you do this.
JIT reduces returns
One of the biggest downsides to running any kind of business is return visits. This happens when a customer comes in frequently, but never buys anything significant or needs you to do their shopping for them.
By keeping inventory at a minimum, your company will have to spend less money buying new products or stocking up on old ones. This saves you money!
And while it may sound scary not to have enough stock, there are ways to deal with this. You can source your goods from online sellers or other retailers that have leftovers they don’t need anymore.
Or you can use your own goods or those of friends or family as collateral to get credit so you can reorder sooner.
In fact, some companies actually require vendors to have a certain amount of inventory on hand so they can manage their supply chain effectively.
JIT reduces shortage
A lot of times, small businesses will run out of an item before they get enough money to afford a large quantity. For example, you might be running low on inventory of paper towels, so you do not have enough to make a decent amount for buying a case.
If someone else has a case of paper towels in their store, you can go buy it from them and then reorder what is left at a lower cost due to your pre-ordered stock.
This way, you do not need to worry about going without paper towels because there are always ones available!
It also helps you keep up with demand as people have different needs depending on how busy or relaxed each period is.
JIT reduces liquidity
One major downfall of running an inventory business is having to liquidate your stock before it can be sold. This happens when you run out of merchandise or are unable to find a buyer for what you have.
Running low on stock means that you cannot make purchases, which could cost you sales as people do not want to buy products that are empty.
This situation can become very costly if you are in business to satisfy customer demands and keep up with competition.
By using quick order processing times, your company will be able to avoid this by ordering extra amounts of goods and storing them until they are needed.