

In contrast to the traditional approach to the industry, where businesses maintain a large supply of inventory on hand “just in case,” the just-in-time (JIT) approach aims to keep only the minimum amount of inventory in stock. New inventory or materials are ordered only when the existing supply declines to a certain level.
Generally credited to Toyota, which began using it decades ago, the JIT technique has great value for business owners in today’s fickle marketplace. Retailers, manufacturers, and even food service businesses can benefit from implementing JIT inventory management. The technique is especially useful if you sell products that quickly become obsolete, such as food or cosmetics with “sell by” dates, consumer electronics accessories, or apparel. JIT can also help seasonal companies avoid ending their season with too much merchandise in stock.
JIT inventory management allows businesses to respond quickly to marketplace demands while reducing the cost and time involved in storing, maintaining, and handling inventory. With lower carrying costs for inventory, you have more capital available to make investments that can grow your business.
Successful JIT inventory management requires carefully calculating your optimal reorder point and reorder quantity. You also need to know the lead time between placing the order and receiving the goods and calculate the optimal “safety stock” to have on hand (that is, backup inventory so you don’t run out of stock before the order arrives).
In years past, JIT had to be managed manually, which was time-consuming and complicated. Today, inventory management software can track your inventory in real-time, alert you when specific items are running low, help you select the best vendor, and automatically place purchase orders. The right technology not only simplifies JIT implementation but also helps you maintain more accurate records and make better forecasts.
Although JIT has become easier to use, it’s not for every business.
When implemented correctly, JIT inventory management can mean significant savings and greater flexibility, allowing for faster growth. Your accountant can help you determine if JIT is right for your business.
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