Just-in-time (JIT) is a lean manufacturing strategy that involves producing the exact number of products you need at the exact time customers need them. This manufacturing strategy was first developed and perfected by Toyota in the 1930s. The goal of JIT manufacturing is to match production with demand.
Most of the big companies, including Apple, Tesla, Toyota, and Samsung, use JIT manufacturing. This manufacturing strategy has become even more popular today since it is much easier to forecast demand thanks to advancements in technologies, including Big Data and artificial intelligence. Demand forecasts made by companies today are more accurate than in the 1930s because of technology.
Example of JIT production
When you order a MacBook on Apple’s website, the waiting time is usually a couple of weeks or days, especially if you upgrade certain components like storage, RAM, GPU, and CPU. The wait is partly because Apple only assembles custom configured devices after the customer has placed an order.
When you visit any Apple Store, you will most likely find the base model versions for all their products. It is hard to find 8TB and 64GB MacBooks Pros configurations piled up in these stores because these are usually assembled after someone has placed an order. Several other tech and auto companies use this same strategy.
Benefits of JIT production
Reduces inventory costs
Having many unsold products piled up in the stores usually leads to more inventory costs since these products have to be kept in the best possible condition until they are sold. With JIT production, you don’t have to invest in building large warehouses and stores since the number of products stored in these facilities is usually close to zero.
It minimizes capital tied up in stock.
Using JIT production allows companies to have enough liquidity since the money invested in raw materials and other production costs is usually minimal. This allows the company to invest this money in other ventures that boost its growth.
More room for customization
Companies can now give customers more choices since products are assembled after an order is placed. For instance, most flagship phones on the market today usually have 4 to 6 color choices, making it easy for customers to choose a color that matches their style.
Since products are manufactured based on demand, this reduces or eliminates the chances of overproduction, so the chances of having dead stock are close to zero.
Cons of JIT production
Longer waiting times
Since products are not always on the shelf, customers have to wait extended periods for the products to get to them after placing an order. This can be frustrating, especially if you need to use the product immediately.
It can put production to a standstill if specific components aren’t available.
With JIT production, some of the components used to manufacture products are ordered from third-party companies. A small issue in the supply of any of these components can put production to a standstill. For instance, several auto companies have several finished cars in their inventory just because they lack a few components like USB ports.