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JIT Meaning (Business Definition: All You Need To Know)

Looking for the JIT Meaning?

What does JIT mean in simple terms?

What are the essential elements you should know!

Keep reading as I have gathered exactly the information that you need!

Let me define JIT in business, how it works, and why it’s important!

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Let’s get started!

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.

JIT History

The just-in-time inventory system was derived from Toyota’s inventory management system designed to streamline its car production schedule with the raw materials needed.

Many refer to JIT as TPS referring to the Toyota Production System.

JIT Definition

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.
Author

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
Author

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.

The JIT system is derived from the Toyota Production System where the manufacturer’s objective is to receive inventory, resources, and parts only when it’s needed for the production process.

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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Now, let’s look at a summary of our findings.

Just In Time Meaning Overview

  • “Just In Time” or JIT refers to an inventory management system designed to increase company profitability and reduce production costs 
  • This system was originally developed by Toyota in producing their cars (JIT is also known as Toyota Production System)
  • For this type of inventory management to work, it’s crucial that the entire supply chain and production systems work smoothly from the ordering of products, delivery, production, and sale of goods 
  • The main advantage in the JIT system is that companies will only need to purchase or carry inventory as required, when required 
Active assets
Backward integration
Cash conversion cycle 
Cellular manufacturing 
Continuous-flow manufacturing 
CONWIP
Do It Right The First Time
Efficiency movement 
Inventory management system
Just In Case
Kanban meaning 
Lean manufacturing 
Return on capital 
Reverse factoring 
Short-cycle manufacturing 
Takt time 
Toyota Production System
What is inventory
What is overcapacity 
What is raw material 
What is working capital
Author
Cash flow statement 
Cost of capital 
Current ratio
Financial leverage 
Free cash flow 
Gross profit margin
Merchandise turnover 
Negative retention 
Net operating working capital
Net sales to working capital 
Net working capital 
Operating cash flow margin
Operating cash flow ratio
Operating expense ratio
Profit analysis 
Rate of return 
Retained earnings 
Return on equity 
Tax retention rate 
Working capital turnover
Author
Editorial Staff
Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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