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Just In Time Production

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Business Studies

If you think that a business can't produce goods without keeping inventory, think again! Just-in-time production serves this very function. just-in-time is one of the fundamental production methods that allow a company to produce goods efficiently while minimising waste. What exactly is just-in-time production and how does it work? Let's find out.

Just-in-time production Definition

Instead of stocking large quantities of raw materials, the firm orders smaller but more frequent batches of goods that go straight into production. This reduces the costs for holding raw materials, components, works-in-progress, and finished products.

Just-in-time (JIT) is a production method where a business only produces what is required to keep the stock level at a minimum.

Just-in-time production methodology

Under a just-in-time production system, materials arrive shortly before production, so there is no stock on-site and the manufacturer thereby avoids storage costs. In addition, the goods are only made when an order is placed. Once completed, they will be shipped immediately to the customer. This reduces the risk of customers cancelling orders and leaving the business with unwanted waste.

However, managing an efficient JIT production process is not easy. There are some key requirements:

  • A highly efficient ordering system

  • A well-trained workforce

  • No machine breakdowns

  • Reliable suppliers. Ideally, the suppliers should be located near the production site to reduce delivery costs and lead time.

One of the most common ordering systems used in JIT production is Kanban, an inventory system developed by Toyota to monitor production and place new orders when stock is running low. The main goal of Kanban is to remove excessive inventory in the production line.

Examples of just-in-time production

Now that you've learned what just-in-time production is, let's look at some examples of companies that adopt this method:

Just in Time Production: Toyota

Toyota is the pioneering company of the ‘lean manufacturing system’ or ‘just-in-time system’. For many years, the corporation has been refining its production process to produce vehicles more efficiently. Toyota Production System (TPS) is based on two concepts: Jidoka, translated as 'automation with a human touch', and Just in time, or producing only what is needed for the next stage in the continuous flow of production. The system not only allows Toyota to quickly produce products of high quality, but also reduces production costs.

Just in Time Production: Burger King

Just in Time Production, example company Burger King, StudySmarterBurger King - Wikimedia Public Domain

Another example of just-in-time production is the making of burgers at Burger King, one of the world's largest fast-food chains. At Burger King stores, a burger is only made when a customer places an order. There's also a good stock of fresh ingredients to make sure the products are served quickly and the waiting time is reduced. In addition to improving customer service, the make-to-order production system allows the fast-food company to cut down on enormous waste.

Just in Time Production: Amazon’s Kindle Direct Publishing (KDP)

Kindle Direct Publishing is a service by Amazon which allows you to print and deliver your book to a customer when it is ordered. In traditional publishing, hundreds to thousands of copies of a book have to be printed out in advance before being distributed in stores and sold to customers. This creates many problems such as out-of-date books and high costs for preservation. On-demand publishing changes all of this by allowing books to be printed only when needed. There is no inventory cost and the products remain up-to-date.

Advantages of just-in-time production

There are many advantages to adopting a JIT production system:

  • No inventory: Since goods are only made when required, the company does not have to hold stock. It can place an order right before production. Once the products are finished, they will be delivered immediately to the customer. With less stock of raw materials, in-progress and finished goods, the business also has more space for production.
  • Fresher goods: Orders are placed in smaller quantities but frequently, so the goods are fresher and in a better state. This is especially important for perishable items such as produce or fruit.
  • Less waste: Products are only made after an order is placed, so there is less risk of customers cancelling the order and leaving the company's unwanted goods. Also, as the company only produces what is required, it has little stock left to dispose of.
  • Lower production costs: Since there are no inventory costs, the production cost is also brought down. This means the selling price is lower, making the company's products more competitive.

Disadvantages of just-in-time production

The JIT system is not without its disadvantages. Here are some challenges a business may face when adopting a just-in-time production system:

  • An abrupt change in demand: As a JIT system operates on a carefully planned ordering schedule, it might pose a challenge for the business to cope with an abrupt shift in demand. For instance, a rise in ice cream demand in the summer months may cause the company to redesign its entire production and ordering schedule.

  • No bulk discounts: Since orders are only placed in a small quantity, the manufacturer can't benefit from bulk discounts or economies of scale.

  • Higher ordering costs: The ordering costs are also greater when more frequent deliveries of goods are being placed

  • Risk of late delivery: If the supplier fails to deliver materials on time, the entire production can be put to a halt. The company then has to compensate for the missed orders and even risks losing customers.

Just-in-case (JIC) vs just-in-time (JIT) stock management

Companies that adopt just-in-case production usually have a surge in demand at unpredictable times. This strategy comes with higher storage costs and inventory waste.

Just-in-case stock (JIC) management is an inventory strategy where the business keeps a lot of stock on hand to limit the risk of stockout.

JIC inventory management is the reverse of JIT inventory management. The main difference is that while JIC aims to avoid the risk of running out of stock by ordering large quantities, JIT tries to minimise inventory costs by placing small orders just before production. In Table 1, you will see more contrasting points between these two inventory methods.

Just-in-case stock managementJust-in-time stock management
Large orders of stockSmall orders of stock, enough for production
A high-level inventoryA low-level inventory
High inventory costsLow inventory costs
High risks of waste Minimum waste

Table 1. Just-in-case and just-in-time comparison.

The choice of whether to use JIT or JIC methods of managing stock depends on the nature of the business. Businesses that operate in highly unpredictable conditions or require constant delivery of goods (e.g. hospitals, pharmacies) should opt for JIC stock management to reduce the risk of running out of stock.

On the other hand, businesses that want to minimize inventory and waste will do better with the just-in-time strategy. Typical examples of JIT businesses include restaurants, on-demand publishing, and tech manufacturing.

Just-In-Time Production - Key takeaways

  • Just-in-time (JIT) is a production method of producing goods only when an order is placed, in order to reduce inventory costs and waste.
  • Under a just-in-time production system, materials arrive shortly before production so there is no inventory, thus reducing storage costs.
  • For a just-in-time system to operate effectively, a business needs a highly efficient ordering system, a well-trained workforce, and reliable suppliers.
  • Just-in-time production comes with many advantages, such as no inventory, less waste, fresher stock, and lower production costs.
  • The disadvantages of just-in-time production include difficulty in adapting to sudden changes in demand, no bulk discount benefits, and the risk of late deliveries.

Sources:

1. Clay Halton, Kanban, Investopedia, 2022.

2. Toyota Production System, Toyota, 2019.

3. Andrew Couldwell, What you need to know about print-on-demand book publishing, Medium, 2020.

Just In Time Production

Just-in-time (JIT) is a production method of producing goods only when an order is made to reduce inventory costs and waste. Under a Just-in-time production system, materials arrive shortly before production so there is no inventory, thus reducing storage costs. 

Toyota, Burger King, Amazon's Kindle Direct Publishing are some examples of companies that adopt Just-in-time manufacturing. Toyota is a pioneering company in using the Just-in-time system. 

Just-in-time production comes with many advantages such as no inventory, less waste, fresher stock, and lower production costs. 

Under a Just-in-time production system, materials arrive shortly before production, so there is no stock on-site and the manufacturer can avoid storage costs. In addition, the goods are only made when an order is placed. Once completed, they will be shipped immediately to the customer. This reduces the risk of customers' cancelling orders and leaving the business unwanted waste. 

The disadvantages of just-in-time production include difficulty in adapting to sudden changes in demand, no bulk discount benefits, and the risk of late deliveries. 

Final Just In Time Production Quiz

Question

What is Just-in-time production?

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Answer

Just-in-time (JIT) is a production method where a business only produces what is required to keep the stock level at a minimum. 

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What is the main benefit of Just-in-time production?

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Reduce inventory costs and waste

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What are the requirements for the JIT system?

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A highly efficient ordering system. 

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What is the ordering system used in Just-in-time production?

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Kanban

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What is not an advantage of Just-in-time production?

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No buffer stock

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With a Just-in-time system, orders are placed in small quantities but more frequently.

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True

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What does Just-in-time production help to prevent?

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Customer's cancellation of orders

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What is the company pioneering the technique of Just-in-time production?

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Toyota

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Just-in-time production requires a highly efficient ordering system, a well-trained workforce, no machine breakdowns, and ...

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reliable suppliers 

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Just-In-Time production does not require holding stock since the products are only made on order. 

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True

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Under a Just-in-time production system, materials arrive shortly before production, thus there is no ... on-site and the manufacturer can avoid ... costs.  

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stock, storage

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The advantages of Just-in-time production include no inventory, fresher goods, ..., and lower production costs.

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less waste

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What is not a characteristic of Just-in-time stock management?

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Small orders of stock, enough for production 

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Companies using JIT production can benefit from lower ...

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inventory costs and waste 

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What can result in disruptions in a Just-in-time production system?

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Late deliveries

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Businesses that operate in highly unpredictable conditions or require constant delivery of goods should choose Just-in-time production to reduce the risk of running out of stock.  

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True

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What is the benefit of low inventory in Just-in-time production?

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More space of production

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With lower inventory costs, the business's ... are also reduced. 

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production costs

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Firms can reduce inventory costs by ordering ... batches of goods. 

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smaller but frequent

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What is the downside of ordering smaller but more frequent batches of goods?

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  • Higher ordering costs
  • No benefit of bulk purchase discount

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Just-in-time (JIT) is a production method where a business only produces what is required to keep the stock level ...

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at a minimum

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Just-in-time manufacturer often benefits from the economies of scale. 

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True

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The opposite of Just-in-time production is ...

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Just-in-case production

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