With the introduction and growth of e-commerce, the barriers to entry are slowly diminishing. Businesses are constantly investing in tactics that will enable them to beat out competitors. Inventory management is a critical component to e-commerce operations and has rapidly progressed over the decades.
Inventory management for your e-commerce business can be difficult. Orders pour in, items need to be dispatched, and it can be challenging to keep track of what is in and out of stock. Customer satisfaction is critical to your company’s success, therefore making sure orders are filled on time should be a key focus. You require a system that keeps track of all of your inventory and guarantees that it is replenished on schedule. One such method is the Just-in-Time Inventory approach. The JIT system aids you in inventory optimization by ensuring that your company only has what is required on hand.
Toyota is a great example of how this approach can help optimize operations for a company. Toyota does not buy raw materials until an order is placed. This has enabled the company to hold minimal inventory, lowering expenses and allowing it to quickly adjust to changes in demand without worrying about existing inventory. However, this is not necessarily as easy to reproduce for e-commerce business.
In this article, we talk about Just-in-Time Inventory comprehensively so you can gauge its pros and cons for your business.
What is Just-in-Time Inventory?
Just-in-time, or JIT, is a technique of inventory management in which products are acquired from suppliers only when they are required. This technique directly matches supplier raw-material orders with manufacturing schedules. Companies use this inventory approach to enhance efficiency and avoid waste by acquiring items just as needed for the manufacturing process, which decreases inventory expenses.
JIT is intended to reduce costs, enhance efficiency, and reduce waste by receiving products just when they are required. It basically implies having enough inventory on hand to fulfill consumer demand, but not more than that, so you must stockpile the remaining shortly after.
How does Just-in-Time Inventory work?
The JIT fulfillment model is fairly straightforward. What makes it standout from other inventory management methods is the way in which raw materials/supplies are purchased later on, only once a customer makes an order, not at the start.
First, a consumer contacts the manufacturer to place an order. When the manufacturer receives the order, they contact their suppliers to place an order. The suppliers receive the order and then provide the materials required by the manufacturer to fulfil the customer’s request. The manufacturer then receives the raw materials, assembles them, and sells them to the customer.
Pros of Just-in-Time Inventory
Reduces Inventory Waste
Just-in-Time inventory helps reduce overproduction. In a just-in-time system, you order only what you need, eliminating the danger of stockpiling useless goods. JIT systems eliminate waste and excessive stock since they rely on consumer demand and only manufacture what has recently been ordered.
Reduces Storage Costs
Warehousing can be expensive and having excess inventory will increase your storage costs. Because inventory is created or acquired on such short notice in a JIT system, there is no need to maintain additional or unsold inventory that takes up valuable inventory storage space. Companies that adopt the just-in-time inventory strategy can minimize the quantity of products in their warehouses or perhaps even eliminate them entirely.
Less Inventory Investment
Inventory is often the most expensive expenditure for organizations, and JIT eliminates the need to buy big bulk inventory batches. Having excess inventory causes items to hang around in warehouses around for an extended period of time. With a JIT system in place, companies spend less money on raw materials because they just acquire what they need to complete orders – nothing more or less. Just-in-time models employ the “right first time” idea, which means doing operations correctly the first time they are completed, therefore lowering inspection and rework expenses. This necessitates less investment for the firm, less money reinvested to correct faults, and more profit produced from the sale of an item.
More control for Manufacturer
In a JIT model, the manufacturer has total control over the manufacturing process, which operates on a demand-pull basis. They can adapt to client demands by rapidly boosting production of in-demand products while decreasing output of slow-moving ones. As a result, the JIT approach is adaptable and able to meet ever-changing market demands.
Cons of Just-in-Time Inventory
Dependency on Suppliers
The Just-in-Time approach is dependent on the performance and timeliness of suppliers, which are difficult to assure. A delay in obtaining stock might be harmful to a company’s supply chain and cause major difficulties. Furthermore, the producer must be prepared to pay any unexpected rises in raw material prices, as they cannot wait for better pricing.
Because the JIT technique requires simply having adequate stock, it is possible for businesses to run out if there is an unexpected increase in demand, causing order fulfilment to be delayed. Because inventory is maintained to a bare minimum and is exclusively based on the customers’ original purchases, just-in-time makes reworking orders extremely difficult.
Adopting to New Software
A just-in-time system must be meticulously tracked and managed, which is difficult to accomplish manually. Software should be used since it simplifies the entire procedure. Even though good software can assist you, it might be difficult and/or costly to implement a new software system and educate your employees to utilize it.
Difficult to Implement
Inventory control, especially for fast-growing companies, is difficult to manage. Companies must have accurate demand predictions, real-time inventory tracking, and consumer purchasing insights in order to perform JIT correctly. A minor blunder might have serious consequences for operations. Companies that use a JIT inventory system quickly realize that there is very little room for error. Therefore, there’s a good chance they’ll come across challenges and setbacks before getting it perfect.
Just in Time inventory systems can help e-commerce stores minimize waste, save space, and reduce costs. However, your store must be as dynamic as possible and capable of handling a manufacturing cycle that is shorter than typical. Just-in-Time inventory can be carefully implemented so that your company does not suffer losses during times of unpredictability. Here at Fulfyld, we help brands that are looking to reduce costs and resources during their fulfilment process by providing customized pricing. Contact us today to learn more!