2017-02-15 00:00:00InventoryEnglishLearn three elements of a just-in-time inventory system that are essential to promoting the long-term success of a company's inventory...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/employee-prices-new-inventory.jpghttps://quickbooks.intuit.com/ca/resources/inventory/how-implement-jit-inventory-system/How to Implement a Just-in-Time (JIT) Inventory System

How to Implement a Just-in-Time (JIT) Inventory System

2 min read

The most efficient inventory system – a just-in-time system – can save a small business time and money. However, prior to implementing a JIT inventory system, a small business should ensure certain elements are in place within and outside of the business to ensure the long-term success of the inventory strategy.

Strong Vendor Relations

To establish a JIT inventory management system, it is critical to have strong relationships with suppliers. The premise of a JIT inventory system is based around the ability to place a last-minute order for inventory and rely on the goods arriving on time. The foundation of this premise lies with your suppliers and your ability to count on them. When you place an order, your vendor should have the ability to process and ship the order quickly to meet your needs. Before entering into shipment contracts, check that your vendor can process your orders on a timely basis, has the capacity to take on orders with short notice, and holds a reliable history of fulfilling requests.

Strong Communication Channels

In addition to the reliability of your suppliers, you must have a reliable channel of communication. You must be able to to distribute order information to your vendors in a manner that specifies exactly what you need. You need to be able to reach a supplier at any moment – especially if an order needs to be adjusted. Because a JIT inventory system revolves around being as efficient as possible, time is the greatest resource, and you must be able to avoid wasting any time on trying to reach your supplier.

Strong Training and Management

For utmost efficiency, you must incorporate a pattern of training employees – especially when changes occur. This falls on the shoulders of management to demonstrate policy guidelines and procedures to employees properly. This is especially critical in a JIT inventory system, as time is of the essence. An employee must know exactly what to do prior to the receipt of an order. Once an order has been placed, it is the responsibility of the well-trained employees to know exactly what needs to be done. Develop internal process charts for manufactured goods and flowcharts to demonstrate the entire life cycle of the product. Hold ongoing forums to monitor the knowledge of your employees and expertise within your company.

Benefits of a JIT System

If your company can meet these requirements, there are numerous benefits to a JIT inventory system. Total expenses are lower with a JIT system than other inventory systems because of lower storage costs, lower insurance expenses, less loss due to obsolescence, and less theft. You can charge higher margins, especially for last-minute orders that must be rushed. JIT inventory systems allow for a greater degree of product flexibility with the ability to service a wider range of customers. Fewer resources are needed for internal controls. While setting up a JIT inventory system is demanding, it reaps benefits for the organization in the long run by saving time and money.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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