The just-in-time inventory system first emerged in the 1970s when Toyota Motor Corp. declared it would help the company manage changes in consumer trends and demands. Essentially, this system ensured that Toyota only received materials when a customer placed an order. This way, the automaker could effectively minimize the need to stock a massive inventory and adapt their products and approach more quickly. Toyota experienced a slew of benefits by doing this, including reduced capital and a better bottom line.
Now, many other industries are following suit and adopting just-in-time (JIT) systems of their own. Even retail made the switch, and it’s been enjoying a competitive advantage ever since.
1. Minimizes Storage Costs
Implementing just-in-time production systems is an excellent way to minimize storage costs, especially if you’re already short on space. Because you’ll only ever receive what you need when you need it, you can easily restructure your warehouse to include a wider assortment of goods rather than stock up on more of the same thing.
Just-in-time management can also minimize costs for manufacturers, which inevitably means lower prices for you. That’s because suppliers will only distribute resources when a factory needs them. Thus, manufacturers will require little storage space, just like retailers.
2. Reduces Capital
As major retailers expand, many invest a great deal of capital into stocking factories and warehouses with extra materials and inventory. Others spend money they don’t yet have to fill their shelves. Ultimately, spending such a significant amount of cash on excess goods can land businesses in debt, which can prompt them to take out loans and even go bankrupt in some instances.
Luckily, companies can reduce capital and stay out of the red by adopting a just-in-time inventory system. Enhance cash flow and better manage upfront costs by refusing to tie up your funds in inventory. Instead, use your profit to improve brand competitiveness, boost customer engagement and invest in long-term growth.
3. Promotes Workforce Flexibility
Many retailers have also benefited from just-in-time because it promotes a flexible workforce. As more employees quit their jobs in search of better pay, many retailers are understaffed and struggling to provide a quality shopping experience.
However, if you minimize your inventory, you can train former warehouse workers in other areas of the business, like manufacturing and customer service. Cross-training and redistributing your workforce will allow you to move people where they’re needed the most so daily operations run more smoothly.
4. Boosts Customer Satisfaction
If your company often receives poor customer satisfaction scores, try implementing a just-in-time inventory strategy. Because this system allows consumers to order whatever they want whenever they want it, they’ll likely be happier with their overall shopping experience.
JIT also allows for on-demand customization and made-to-order goods and services that cater to customers’ specific needs. Items are unlikely to ever go out of stock unless there’s a disruption within your supply chain. Even then, backup and emergency energy supplies and supplier diversification can ensure a continuous supply. Companies will also look to artificial intelligence to spot trends, predict demand and mitigate future supply chain issues.
5. Minimizes Waste
It takes manpower, resources and time to dispose of unwanted and obsolete consumer goods. Ultimately, this extra effort can cost companies billions of dollars and take a major toll on profitability. However, many retailers continue to overstock and rely on a just-in-case inventory.
The fashion industry is a prime example. Each season, it overproduces products by about 30%-40%. This excess ultimately ends up as waste, contributing to about 10% of all global carbon emissions, and is a major source of pollution.
Just-In-Time and Rebalancing the Supply Chain
The JIT inventory system worked swimmingly until the pandemic disrupted the global supply chain. Now, even the automakers who invented it are facing chip shortages and assembly line shutdowns. Therefore, retailers must rebalance the supply chain before returning to an effective just-in-time system.
Create a contingency plan for each of your high-tier suppliers, double sourcing products and move goods closer to the selling market to avoid transportation disruptions. This way, you’ll be prepared for future mishaps and more likely to turn a profit, even in the face of uncertainty.
Credit: Devin Partida is a retail writer and blogger. You can read more posts from Devin at ReHack.com, where she is the Editor-in-Chief.