Search
Close this search box.

Table of Contents

Just In Time (JIT)



Definition

Just In Time (JIT) is a production strategy that aims to reduce in-process inventory and associated carrying costs. In financial terms, it’s about receiving goods only as they are required in the production process, thereby reducing inventory costs. Essentially, it’s a method to increase efficiency and decrease waste by receiving goods only as they are needed.

Phonetic

Just In Time (JIT) in phonetics is: /ˈjəst ɪn ˈtaɪm/ (J-UH-S-T I-N T-AH-Y-M)

Key Takeaways

<ol><li>Just In Time (JIT) is a production model in which items are created to meet demand, not created in surplus or in advance of need. The purpose of JIT is to avoid the waste associated with overproduction, waiting and excess inventory.</li><li>Because of the high level of coordination required to effectively implement JIT, it is often associated with the Lean manufacturing philosophy. It relies heavily on balance between suppliers’ and manufacturers’ efficiency, and requires very reliable sources of raw materials.</li><li>While the system can increase efficiency and decrease waste, implementing JIT could potentially lead to increased risk with supply chain issues. Without any buffer inventory, production can come to a halt if there are any delays or issues with the raw materials.</li></ol>

Importance

The business/finance term “Just In Time” (JIT) is important as it refers to a management strategy that aligns raw-material orders from suppliers directly with production schedules. The primary goal of JIT is to improve a business’s return on investment by reducing in-process inventory and associated carrying costs. It can help businesses increase efficiency and decrease waste by receiving goods only as they are needed for the production process, reducing inventory costs. Moreover, it encourages improved process and product quality, less rework, and fewer production errors. Therefore, JIT is critical for optimizing inventory control, improving cash flow, and enhancing operational efficiency, directly supporting cost management and profitability objectives.

Explanation

The Just In Time (JIT) principle serves as a strategic tool in operational and financial management, primarily aimed at reducing in-process inventory and its associated carrying costs. This system revolves around the production process being streamlined and optimized such that companies produce or receive goods only as they are needed, hence the term “Just in Time.” This approach eradicates the need for businesses to store excess inventory, freeing up storage space and reducing costs spent on inventory management and obsolescence.JIT is especially useful in reducing capital tied up in inventory, thus improving a company’s cash flow and overall financial health. It can also lead to improved efficiency and productivity as businesses are driven to eliminate inefficiencies and waste in their production processes to meet the just-in-time requirements. Additionally, companies that employ JIT can quickly adapt to changes in demand, ensuring customer satisfaction while mitigating the risk of overproduction. However, the success of the JIT model requires accurate forecasting and dependable suppliers, as there is little room for errors or delays. In the broader economic sense, JIT can contribute to a leaner, more efficient economic system by reducing waste and improving productivity.

Examples

1. Toyota Motor Corporation: The Japanese car manufacturing giant is perhaps one of the most famous examples of Just In Time (JIT) inventory management. Toyota’s JIT approach means that the cars are assembled using parts that arrive at the factory just in time to be integrated into the production process. This means there are no excess components in stock, thereby minimizing storage costs and reducing the risk of items becoming outdated.2. Dell Computers: Dell uses the JIT methodology to deliver a customized product. When a customer orders a specific computer and selects their desired features and components on the Dell website, those instructions are sent to the manufacturing department which gathers the necessary parts just in time to assemble the ordered product, rather than maintaining a large stock of pre-assembled computers.3. McDonald’s: The fast-food chain uses JIT in managing supplies of its ingredients. McDonald’s do not begin to cook or prepare meals until a customer has placed an order. Ingredients such as buns and vegetables, are delivered to the restaurant just in time for them to be used, reducing waste and maintaining freshness, which are key factors in their business model.

Frequently Asked Questions(FAQ)

What is Just In Time (JIT)?

Just In Time (JIT) is an inventory management methodology that is designed to increase efficiency, cut costs and decrease waste by receiving goods only as they are needed in the production process.

Where did JIT originate?

JIT originated in Japan in the late 1970s. The strategy was largely popularized by Toyota’s production system, which is also known as Lean Manufacturing.

What are the key benefits of implementing JIT?

The key benefits of implementing JIT are the reduction of waste, decrease in storage and inventory carrying costs, improvement in cash flow, and increased efficiency in the production processes.

What are the risks associated with JIT?

The risks of JIT include a dependency on suppliers, potential quality issues due to rushed production, and the lack of inventory buffer in case of a sudden increase in demand or supply chain interruption.

How does JIT manage inventory?

JIT manages inventory by aligning it with production schedules. Inventories arrive just when needed for production, eliminating the need for long-term storage.

Is JIT suitable for all types of businesses?

No, JIT isn’t suitable for all types of businesses. Businesses with unpredictable demand, poor quality control or ineffective production processes may face problems implementing JIT.

How does JIT impact customer service?

When implemented effectively, JIT can improve customer service by ensuring that products are always available while reducing waiting times. However, if there are problems in the supply chain, it might lead to delays and dissatisfaction amongst customers.

How can a business transition to a JIT system?

A business can transition to a JIT system by gradually reducing their inventory levels, improving production processes, building stronger relationships with suppliers, and using technologies like real-time data analysis and forecasting to better predict demand.

Related Finance Terms

  • Lean Manufacturing
  • Inventory Management
  • Supply Chain Efficiency
  • Demand Forecasting
  • Production Scheduling

Sources for More Information


About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More