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What does JIT mean in simple terms?
What are the essential elements you should know!
In this article, I will break down the notion of JIT Meaning so you know all there is to know about it!
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Table of Contents
Understanding JIT Meaning
JIT is an acronym for Just-In-Time referring to an inventory management strategy used by many companies to streamline their production with raw material orders.
The main objective of deploying just-in-time inventory management is to increase overall production efficiency, reduce waste, and reduce production costs.
There are many variations of the JIT system that have been developed such as short-cycle manufacturing or continuous-flow manufacturing where the main objective remains to increase inventory management efficiency and improve profitability by cutting production costs.
Many refer to JIT as TPS referring to the Toyota Production System.
What is the definition of JIT?
According to Investopedia, JIT means:
The just-in-time (JIT) inventory system is a management strategy that minimizes inventory and increases efficiency.
The Collins dictionary defines just-in-time as follows:
denoting or relating to an industrial method in which waste of resources is eliminated or reduced by producing production-line components, etc, as they are required, rather than holding large stocks
As you can see from these definitions, in business JIT refers to an inventory system or industrial method intended to reduce production costs by eliminating waste and investing in production resources only with it’s needed.
How Does JIT Work
The just in time inventory management system is a good strategy to adopt in order to reduce excess inventory, reduce production costs, and increase efficiency.
As the name implies, manufacturers using the JIT inventory system will order materials, parts, and raw materials only after they have received an order to produce their goods.
This way, manufacturers do not have to purchase inventory based on mere forecasts but make purchases based on actual orders received for their products.
For this type of system to work efficiently, the entire supply chain must work in a well-coordinated and efficient manner.
In other words, for the manufacturer to be able to produce its goods on time, it must have the assurance that when it orders parts from its suppliers, the supplier will quickly deliver the needed parts or material.
Then, once the suppliers quickly deliver the parts, the manufacturer’s production method must also be well organized, with high qualify workmanship, and free from any unexpected breakdowns and machine failures.
Benefits fo JIT Inventory Management System
There are many advantages to deploying a JIT inventory management system.
The main benefit of using JIT is that a company does not need to invest a lot of money in carrying inventory that it may or may not use depending on the orders coming in.
Instead, the company will only order inventory that is actually required to support orders received for its products.
Since the manufacturer does not need to carry excess inventory, it can better utilize its cash flow to invest in other areas of the business where it can generate a higher rate of return.
In fact, the company will spend just enough money to purchase the inventory effectively needed at any given time.
Also, carrying less inventory means that the company will not need to incur important costs in keeping the inventory in warehouses or in storage.
Finally, another key advantage is that since companies carry less inventory, they will have greater flexibility in moving from the production of one product to another.
JIT Meaning Example
Let’s look at an example of how JIT can be used in production and manufacturing.
Imagine that a company produces mobile phones and needs to purchase different parts, components, and materials to produce each mobile phone unit.
Without a JIT system, the company will need to forecast how many units of mobile phones it will sell and order sufficient materials and parts ahead of time.
If it estimates that it will sell 1,000,000 units, it will purchase raw materials, parts and components to be able to produce 1,000,000 units.
The risk here is that if the company overestimates its sales, it will invest too heavily in ordering parts and materials resulting in cash drainage and additional costs to store the parts in its warehouses.
If the company has the inventory to produce 1,000,000 units but only receives orders to produce 500,000 units, then it will be stuck to carrying extra inventory.
On the other hand, with a JIT inventory management system, the company will order what it needs to produce the mobile phones only when orders are received.
For instance, if the company receives orders to produce 500,000 units, it will order purchase raw material and parts to produce precisely 500,000 units.
Of course, in real life, companies will also purchase slightly more to account for defective parts and losses but you get the point.
JIT Meaning FAQ
Let’s look at a few questions related to what JIT means.
What does a JIT mean
JIT is an acronym meaning Just-In-Time.
A just-in-time inventory management system is an inventory management strategy aimed at aligning inventory needs with actual production requirements.
The objective is to minimize the amount of inventory carried and increase operational efficiency.
What is just in time manufacturing
In manufacturing, JIT refers to the “just in time” inventory management system where a company purchases raw materials and resources to produce goods in alignment with orders for its goods and products.
In essence, the company does not carry extra inventory or over-invest in inventory to produce goods.
What is inventory management
Inventory management is a system or approach used to source, store, and sell what’s in your inventory.
The inventory management process applies to the purchase of raw materials, components, all the way to the sale of finished goods.
With the right inventory management system, companies will purchase the right amount of stock, at the right time, in the right place, and at the right cost to reduce their production costs and increase profitability.
What Does JIT Mean Takeaways
So there you have it folks!
What is a JIT in simple terms?
What does JIT stand for you may ask?
JIT is the acronym referring to Just-In-Time production or Just-In-Time manufacturing which is a production method aimed at reducing increasing inventory management efficiency and profitability.
By purchasing the resources “just in time”, companies can increase their profitability by producing goods more efficiently.
I hope I was able to explain to you what is the just in time definition, how it works, and why it’s important.
Good luck with your inventory management!
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Just In Time Meaning Overview
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