Just-in-Time (JIT) in logistics - pros and cons

# Autonomous Enterprise

Just-in-Time (JIT) in logistics – pros and cons

21.10.2022

The Airbus A380 comprises around four million individual parts produced by 1,500 companies in 30 countries [i]. Manufacturing even one such aircraft would be impossible without advanced logistics methods and the supporting IT tools to manage supply chains.

One of the methods that underpin modern logistics is Just-In-Time. Its roots can be traced back to the Toyota production facilities of the 1950s and 1960s. Since then, it has been refined, gained popularity, and worked in many countries and industries.

Just in Time – what are the main principles of this method?

The very name of the Just-In-Time (delivery) concept is self-explanatory. It reflects its essence, which boils down to supplying the materials needed to produce goods or services in precisely the quantity and at the Time the company needs them. With this kind of procurement logistics, if everything worked perfectly, one could imagine a large car factory without any warehouses for parts and components. Everything that arrives from suppliers would be routed immediately to production. But, unfortunately, in life, few things happen so flawlessly. More realistic assumptions are therefore needed.

The first is to strive to reduce stock levels constantly. Warehousing beyond current needs is just additional costs for unnecessary storage space; it is capital locked up in excessive stock and wasted human and machine effort. There is, therefore, plenty to save on.

The second assumption is to minimize production batches. Short product runs make it easier to adapt production to changing demand. The result? Optimization of production volumes and a reduction in the total cost of manufacturing. Very often, a decrease in production time is also achieved by setting up machines in a sequence aligned with the manufacturing process flow, limiting the distance between the successive stages of the production process, using efficient appliances, and standardizing production processes.

The third and perhaps weakest link in the Just-In-Time method is minimizing the waiting Time for the delivery of supplies or raw materials. On the one hand, this is doable, as it is hard to imagine erecting a high-rise building in the center of a major city if deliveries were not precisely on Time. Still, on the other hand, the pandemic has shown that even on a global scale, a shortage of containers, for example, can happen. And that already means long delays and disruption of many supply chains.

The last principle is to reduce the delivery time of finished products. If it is possible to quickly produce small batches of products, why keep them in-house or at intermediate locations? They should be shipped immediately to the final customer. This is the cheapest option.

In general, the whole Just-In-Time method will increase the efficiency of the operation of the entire company and the production of high-quality products, thanks to the thorough quality control at each stage of production.

What are the downsides of using the Just-in-Time Inventory method in logistics?

In theory, everything is as good as can be, although it’s not surprising that Just-In-Time was born in Japan, in an entirely different culture. At its core, the method requires a tremendous amount of discipline in all links of the extended supply chain and a developed logistics and transportation infrastructure in all the countries from which the contractors come. Managing such a chain is a real challenge.

From Poland’s perspective, finding reliable and trustworthy suppliers oriented toward long-term cooperation can be challenging. Moreover, even if such are found, the impendence on their supplies grows as Time passes, and the bargaining power for subsequent orders decreases. On top of that, one has to take into account a whole range of primary and minor risk factors such as road repairs and reconstructions, bottlenecks at highway toll booths, strikes, carelessness, and not always the top-notch technical culture of employees, administrative officials’ selfishness and holding supplies in customs – this list is by no means short or insignificant. Simply put, Just-In-Time is not just for everyone.

If one minimizes stock levels, handling an unexpected but large order with a short lead time will be difficult. The frequency of such events will determine whether JIT is the right way to manage warehousing and production in a specific company.

When deciding to adopt this method, it is also necessary to keep in mind the requirement for appropriate IT support, without which, in practice, the Just-In-Time principles cannot be implemented. In addition, software, IT infrastructure, and the right specialists are additional costs that must also be considered.

What are the advantages of using JIT in logistics?

Fortunately, the tangible benefits and numerous advantages of the JIT method significantly outweigh its disadvantages and possible risks. First and foremost, what appeals to the managers is the money saved from permanently reducing product storage costs and reducing the production output to only match the current demand. In large companies, savings of just a few percent are running into millions. In addition, less inventory means a smaller warehouse area, fewer forklifts, fewer racks, etc. This also reduces the fixed costs of business. So, there is something to go after.

JIT is also a well-thought-out and reliable optimization of logistics processes, better use of human resources, and an opportunity to focus the company’s efforts on the most critical business tasks related to, for example, better organization of deliveries. Thoughtful actions in this area, i.e., the deliveries of supplies and raw materials for production and the shipping of finished goods to customers, can generate substantial savings. Even such seemingly minor things as optimizing and linking cargo distribution in a semi-trailer to successive unloading points in the annual reconciliation bring a visible financial effect – faster unloading means lower costs.

Every company produces as many of its products as are currently demanded. As a result, there is no inventory stuck in warehouses where it could, for example, expire or get damaged. The risk is also minimized that, for example, a change in trend or fashion or new technology will leave the business with a large batch of unsellable merchandise.

How to implement JIT in a company?

Any decision to implement JIT in a company must be preceded by very detailed analyses of the company’s processes, especially the logistics and production processes. First, ensuring a smooth and uninterrupted flow of information throughout the supply chain is necessary. When building relationships with contractors, it is helpful to consider trust t. If the suppliers have insight into our current orders, they will be able to prepare more quickly for increased deliveries, for instance. Ensuring the flow of information in the supply chain takes appropriate information technologies, such as, among other, ERP, EDI, and SCM systems, but also requires solving many data security issues.

Another crucial issue is the choice of suppliers. Here it is no longer likely to be only the price that matters but also their ability to deliver regularly and reliably. For the logistics specialist, choosing suitable storage systems and warehouse layouts is essential to minimize the length of the warehouse equipment operators’ routes. Conveyor loops, mini load storage, on-hand shelving, and racks come in handy and should provide a variety of ways to handle goods, depending on their rotation. It is also essential to optimally plan the warehouse’s loading docks to run the receipt and dispatch of many shipments smoothly.

Implementing JIT in any business will require investing in the right analytical tools to predict demand, show current trends and provide input to logistics and production systems.

An excellent example of such a Just-in-Time Inventory Management tool is the SmartStock module of the Epicor Kinetic ERP system. It is used to optimize the supply chain in decision uncertainty. The module’s operation allows decisions to be made in a state of continuous adaptation to continually forecast the demand and production, preventing overstock and understock situations.

On what pillars is JIT implemented in companies?

The three main foundations to building a Just-In-Time company are complete control over the warehouse processes, optimization of warehouse operations, and the right IT tools integrated with the ERP system, or MES (Manufacturing Execution System). It is worth complementing this set with the often underestimated human factor – in fact, without the painstaking work of educating and training the staff, without developing a sense of responsibility for work in the employees and convincing them that it is worthwhile to seek every opportunity to save time and effort, Time will be challenging to talk about a complete success of a JIT implementation. Flexible, versatile, and multifunctional workers who can efficiently operate several machines are quicker to identify and anticipate problems. They are familiar with various aspects and nuances of production and can be redeployed to other positions in case of delays and take over the duties of an absent employee. Achieving such results, however, requires the long-term building of mutual respect between the employees and the management.

So, does the use of JIT (just-in-time delivery) make sense?

So, although this will not be possible everywhere, Toyota’s plants have reduced their production cycle from 15 days to 1 day using the Just-In-Time system. After ten years of using this system, work productivity increased by more than 40%.[ii]

Business practice and several decades of use of this method have convinced many – “Delivery on time” also works well in Polish companies. However, in the opinion of many specialists, it is interpreted overly simplistic manner.

When deciding to implement Just-in-Time Logistics, one must remember that it is a complex and time-consuming project that takes 3 to 5 years. An organization implementing JIT should know that the implementation never ends because the efficiency and flexibility achieved once should be perpetually improved.

[i] https://dlapilota.pl/wiadomosci/dlapilota/a380-4-miliony-czesci-i-30-zaangazowanych-krajow

[ii] https://lean-management.pl/jit/system-just-in-time-jit/