Just In Time - JIT

Just in time inventory is a game-changing innovation to contain costs and further quality with shorter production runs...with the goal of remaining "at capacity maximum," but managably there for the long haul.

The JIT system demands a clockwork perfection in the supply chain. Parts must arrive as they are needed...not before, not after.

Advantages: production runs remain short, which means manufacturers can move from one type of product to another easily. This method reduces costs by eliminating warehouse storage needs. Companies also spend less money on materials, because they buy just enough resources to make the ordered products and no more.

In old school inventory management, a division of the company might have dedicated 5,000 x $400 = $2 million in tire inventory. Couldn't that capital be used elsewhere? In the JIT way, the capital needed for inventory was miniscule. A few tires here, a few tires there, refreshed every day. Refreshed. Hmmm.

What happens if the inventory of tires runs into a mountain pass snow-storm and can't be refreshed daily?

Yeah, JIT only works when it works really well. You can imagine the enormity of the cost to the manufacturer if the production line ran out of tires. Suddenly, cars back up on the line; there's nowhere to store them…or even move them, because, well...they have no tires.

Then things back up more and more—let's say there's a run on rubber supplies and the company can't get tires for a month. Suddenly, sales from the consumer auto dealerships get canceled and consumers buy another make of car from another company/competitor.

In fact, it was a lot of this fear-of-supplies-being-cut mindset that created the "over-inventory" status that the U.S. automakers had in the '60s and '70s. The children of World War II knew very well that nothing was guaranteed, and they slept more soundly at night with 5,000 sets of tires in the garage.

Imagine what you'd do if milk was only available once a week for you as a young kid. But the economies of the world grew up. The distribution of commodities grew more global and liquid...and supply lines just don't get cut in a world generally at peace.