JUST IN TIME AND SUPPLY CHAIN MANAGEMENT

Athira PV
School of management studies
CUSAT, Kochi – 22
E-mail: athirapv182@gmail.com

Abstract: Investment in inventory absorbs a large portion of the working capital of a company
and often it represents a large portion of the total assets of a business. By improving return on
investment by increasing the rate of inventory turnover, management often wants to ensure
economic efficiency. Effective inventory management enables a firm to provide lower costs,
rapid response and flexibility for its customers. Just-in-time (JIT) management philosophy is
most widely adopted and practices in the recent years worldwide. It aims at reducing total
production costs by producing only what is immediately needed and eliminates wastes. It is
based on a radically different concept, deviating substantially from the existing manufacturing
practices in many respects. It is a very effective tool to reduce the wastage of inventory and
manage it effectively. It has the potential to bring substantial changes in the existing setup of a
company; can give it a new face, broaden its acceptability and ensure a longer life. It can
strategically change the atmosphere needed for longer survival.

Keywords: Just in time management, Inventory turnover, Inventory management

1.0 INTRODUCTION
The three main strategic imperatives that emerged in this century are low cost, high quality and
improved responsiveness (both delivery time and flexibility of product delivery) [1]. Cost
efficiency was the driving force behind Henry Ford’s mass production paradigm with large
production volumes providing low per unit cost. Through the efforts of W. Edwards Deming and
Joseph M. Juran in Japan, quality became the next strategic imperative. The marketplace valued
efficiency and low prices, but began to emphasize the quality of products and services in product
purchasing decisions. As a result of increased global competition in the 1970s, responsiveness
emerged as the third strategic imperative. Buyers became more sophisticated and they demanded

1
more customization and shorter lead-times. Manufacturers found they could no longer maintain
the large volumes of production and cost efficiency of their production processes with these
higher levels of change and uncertainty. As a result, firms concentrated on the reduction of cycle
time and solving the tradeoffs between efficiency and flexibility.

One of the techniques used to resolve the tradeoffs between quality, cost efficiencies and shorter
cycle times was just-in-time. In the United States, just-in-time was viewed as a specific program
to be implemented in a manufacturing operation. Since its early beginnings, just-in-time has
evolved and expanded into a philosophy of continuous improvement and the elimination of
waste [2]. The concepts of continuous improvement and the elimination of waste are now an
integral part of good management practices. Just-in-time is closely correlated with Total Quality
Management with the ultimate goal of meeting and/or exceeding customer requirements. Key to
the success of just-in- time was the internal synchronization and integration of operations and
improved relationships with suppliers [3].

2.0 JUST-IN-TIME

The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders
from suppliers directly with production schedules. Companies employ this inventory strategy to
increase efficiency and decrease waste by receiving goods only as they need them for the
production process, which reduces inventory costs. This method requires producers to forecast
demand accurately. The JIT inventory system contrasts with just-in-case strategies, wherein
producers hold sufficient inventories to have enough product to absorb maximum market
demand. One example of a JIT inventory system is a car manufacturer that operates with low
inventory levels but heavily relies on its supply chain to deliver the parts it requires to build cars,
on an as-needed basis. Consequently, the manufacturer orders the parts required to assemble the
cars, only after an order is received. For JIT manufacturing to succeed, companies must have
steady production, high-quality workmanship, glitch-free plant machinery, and reliable suppliers.

2.1 ELEMENTS OF JUST-IN-TIME

Just-in-time is a system for eliminating waste and reducing inventories at all levels of the
operation. Just-in-time implementations include: quality control improvement; lead- time
reductions; vendor performance improvement; total preventative maintenance continuous

2
improvement; and, the elimination of waste. The material planning side of JIT includes
producing parts in small lots just as they are needed [4]. This is possible only if setup times are at
a minimum and in-process inventory is as low as possible. JIT production is based on a pull
system where in an ideal world, customer orders would trigger production of a finished product
and component parts would be pulled to the last operation and back through all processes.

In one study of U.S. suppliers to Japanese automotive and electronic firms, JIT implementation
resulted in: shorter lead- times, lower defect rates, less raw materials, work-in-process and _
finished goods inventory, and flexible work forces [5]. In many cases the results were achieved
for the individual firm implementing JIT, not the firm’s JIT partners.

2.2 ELEMENTS OF SUPPLY CHAIN MANAGEMENT

The supply chain includes all the activities involved with planning, coordinating, and controlling
materials, parts and finished goods, from suppliers to the ultimate customer. The physical flow of
materials begins with the source of supply and ends at the point of consumption, typically
including a series of companies. The scope of the supply chain extends beyond just the
movement of material to include the flow of information. It includes the activities of supplier
management, purchasing, material management, manufacturing management, facilities planning,
and customer service, as well as transportation and physical distribution. It also includes
functions such as marketing, sales, and finance.

The objective of managing the supply chain is to synchronize the requirements of the customer
with the flow of materials from suppliers in order to achieve a balance between what is often
seen as the conflicting goals of high customer service, low inventory investment, and low unit
cost. The design and operation of an effective supply chain are fundamental to the successful
operation of any enterprise [6]. Supply chain management is not the same as traditional materials
management. As noted by Oliver and Webber [7], supply chain management views the supply
chain as a single entity rather than tasks to be segmented to various functions. These authors also
state that supply chain management depends on strategic thinking, views inventory as a
balancing mechanism of last resort and requires systems integration, not just interfaces.

3
2.3 JIT SYSTEM PRINCIPLES

These JIT improvements can only become available with efficient supply chains. There are 3 JIT
system principles which are of importance when considering implementation [11]:

1. Total quality control; JIT system focuses on improving efficiency of material processes
and quality is very important.
2. Elimination of waste: JIT system focuses on improving the effectiveness of processes
and operations that add value to the materials. Inventory is considered as waste and
should be reduced as much as possible.
3. People involvement; the company’s employees are its most valuable resource. It is
essential that everyone understands JIT system and gets involved with making it a
success.

2.4 JIT SYSTEM INVENTORY MANAGEMENT PRINCIPLES

Minimizing waste is one of the basic objectives of JIT system. This requires the effective
management of inventory throughout the entire supply chain. A manufacturing enterprise will
initially seek to reduce inventory and improve operations within its own organization. It is also
vital to an organization that improvements are carried out continuously to enable it to maintain
competitiveness. This is in line with the concept of ‘kaizen’ or continuous improvement [12]. In
an attempt to minimize waste attributed to inefficient inventory management, 6 principles related
to JIT have been described by Schniededans (1993) and they are:

1. Reduce lot size and increase frequency of orders.

2. Reduce buffer inventory.
3. Reduce purchasing cost.
4. Improve material handling.
5. Seek zero inventories.
6. Seek reliable suppliers.

Most of the above principles are related either to the supplier or the supply chain. Lot size, buffer
inventory, purchasing cost, material handling and reliable suppliers are all supply chain related
factors. Thus the supply chain is a critical factor for making JIT System successful.
4
3.0 SUPPLY CHAIN MANAGEMENT

Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in
the marketplace. SCM represents an effort by suppliers to develop and implement supply chains
that are as efficient and economical as possible. Supply chains cover everything from
production to product development to the information systems needed to direct these
undertakings.

Typically, SCM attempts to centrally control or link the production, shipment, and distribution of
a product. By managing the supply chain, companies are able to cut excess costs and deliver
products to the consumer faster. This is done by keeping tighter control of internal inventories,
internal production, distribution, sales, and the inventories of company vendors.SCM is based on
the idea that nearly every product that comes to market results from the efforts of various
organizations that make up a supply chain. Although supply chains have existed for ages, most
companies have only recently paid attention to them as a value-add to their operations.

SCM activities can improve customer service. Effective supply chain management has the ability
to ensure customer satisfaction by making certain the necessary products are available at the
correct location at the right time. SCM can also increase customer satisfaction by delivering
products to consumers on time and providing fast service and support whenever needed. By
increasing customer satisfaction levels, enterprises are able to build and improve customer
loyalty, making the boost in customer service important for both the customer and business.

SCM also provides a major advantage for companies by decreasing the overall operating costs.
SCM activities can reduce purchasing cost, production cost and total supply chain cost. By
lessening operating costs, SCM is also able improve a company's financial position. The reduced
supply chain costs can greatly increase a business's profits and cash flow. Furthermore, SCM can
diminish the use of large fixed assets -- such as warehouses and transportation vehicles -- by
allowing supply chain experts to redesign their network in order to properly serve and operate
with five warehouses instead of eight, reducing the cost of owning an additional three facilities.

5
The lesser known importance of SCM can be found in its critical role in society. SCM can help
ensure human survival by improving healthcare, protecting humans from climate extremes and
sustaining human life. Humans rely on supply chains to deliver necessities like food and water as
well as medicines and healthcare. The supply chain is also vital to the delivery of electricity to
homes and businesses, providing the energy needed for light, heat, air conditioning and
refrigeration.SCM can also improve the overall quality of life by fostering job creation,
providing a foundation for economic growth and improving standards of living. A multitude of
job opportunities are opened up since supply chain professionals design and control all of the
supply chains in a society as well as manage inventory control, warehousing, packaging and
logistics. Furthermore, one commonality between most poor nations is their lack of a developed
supply chain. Societies with strong, developed supply chain infrastructures -- such as large
railroad networks, interstate highway systems and an array of airports and modern ports -- can
efficiently exchange goods a lower costs, allowing consumers to buy more products, thus
providing economic growth and increasing the standard of living in the respective society.

4.0 ALIGNING JIT PRACTICES AND SUPPLY CHAIN ELEMENTS

Elements of Just-in-time

 Cross-trained employees

 Linked manufacturing cells

 Small Jot production

 Reduction in inventory investment

 Quick equipment changeover

 Total productive maintenance

 Close supplier partnerships

 Close customer partnerships

 Schedules synchronized to demand

 Quality at the source

 Pull production

6
  Produce some of each product each day

 Continuous improvement

 Uniform production levels

 Pull product from suppliers

Elements of Supply Chain Management

 Cross-functional thinking

 Linked supply chain nodes

 Produce to replenishment

 Set target inventory at each node

 Short cycle times

 Reliable systems at each node

 Daily supplier integration

 Replenishment of customer stock

 Synchronized supply and demand

 Reliable nodes with quality at each node

 Demand pull visibility[8]

JIT encourages cross-training employees to be able to perform more than one task. Through job
rotation, employees begin to understand their impact on the whole product or service and on
customer satisfaction. Similarly, supply chain management encourages cross-functional training
and thinking about the larger processes of satisfying customer demand and optimizing supply
chain performance. JIT suggests implementing focused work cells linked together to produce a
family of products. Supply chain management links not only the processes within the company
and suppliers, but extends that link to suppliers’ suppliers, customers, and customers’ customers.
Companies using JIT methods aggressively cut equipment setup and changeover times [9].
Supply chain management encourages cutting flow time all along the chain from suppliers to
customers. Reduced cycle time improves responsiveness to customer demand.

7
Other JIT elements are not as closely aligned with supply chain elements. With JIT, inventory is
considered waste, and operations managers reduce inventory to uncover the exposed problems
such as late deliveries, machine breakdowns, and poor production performance. Supply chain
management looks at inventory investment across the entire chain. Optimizing inventory at the
manufacturer may only force added inventory at the suppliers, as has been the result at a number
of companies [10]. This may or may not improve customer service. At the supply chain level,
inventory should be considered a strategic asset, to be deployed at the best locations across the
chain.

4.1 BENEFITS OF IMPLEMENTING JIT SYSTEM

Companies like to use JIT as it is seen as a more cost efficient method of holding stock. Its
purpose is to minimize the amount of goods you hold at any one time, and this has numerous
advantages [13]:

Less space needed: With a faster turnaround of stock, you don’t need as much warehouse or
storage space to store goods. This reduces the amount of storage an organization needs to rent or
buy, freeing up funds for other parts of the business.

Waste reduction: A faster turnaround of stock prevents goods becoming damaged or obsolete
while sitting in storage, reducing waste. This again saves money by preventing investment in
unnecessary stock, and reducing the need to replace old stock.

Smaller investments: JIT inventory management is ideal for smaller companies that don’t have
the funds available to purchase huge amounts of stock at once [14]. Ordering stock as and when
it’s needed helps to maintain a healthy cash flow. All of these advantages will save the company
money.

4.2 PROBLEMS RELATED WITH THE IMPLEMENTATION OF JIT

JIT unfortunately comes with a number of potential disadvantages, which can have a significant
impact on the company if they occur.

8
Risk of running out of stock: By not carrying much stock, it is imperative you have the correct
procedures in place to ensure stock can become readily available, and quickly. To do this, you
need to have a good relationship with your supplier(s). You may need to form an exclusive
agreement with suppliers that specifies supplying goods within a certain time frame, prioritising
your company. JIT means that you become extremely reliant on the consistency of your supply
chain.

Lack of control over time frame: Having to rely on the timeliness of suppliers for each order
puts you at risk of delaying your customers’ receipt of goods. If you don’t meet your customers’
expectations, they could take their business elsewhere, which would have a huge impact on your
business if this occurs often.

More planning required: With JIT inventory management, it’s imperative that companies
understand their sales trends and variances in close detail. Most companies have seasonal sales
periods, meaning a number of products will need a higher stock level at certain times of the year
due to higher demand. Therefore, you need to factor that into planning for inventory levels,
ensuring suppliers are able to meet different volume requirements at different times.

A study of just-in-time implementations found the following reported problems: Cultural

resistance to change, Lack of resources, Lack of top management understanding or commitment,
Lack of performance measures

Top management commitment, worker participation, and education are critical factors in JIT
implementations. Many JIT implementation problems are related to management commitment
and willingness to commit resources to employee empowerment and training. As these factors
will be important in supply chain implementation, companies who have addressed them as part
of a JIT implementation can use that experience in their supply chain implementation.
Management can then focus on the new challenges associated with supply chain management.
These issues must be addressed at multiple companies along the chain for successful
implementation.

Lee and Billington [15] presented a number of pitfalls in supply chain management that fell into
three major areas: information definition and supply chain management; operational problems;

9
and, strategic and design related. Included were the importance of defining information and its
accuracy and establishing performance metrics. Also addressed were issues such as
organizational barriers and the complete and integrative design of supply chains. Marriott [16]
suggests a number of problems that stand in the way of realizing the benefits of supply chain
management. First, is the inability of people to cooperate and collaborate to get results, Also,
problems result from either lack of information or lack of trust. Information must be available
both within the company and between supply chain nodes. Trust includes both trusting others
within the company and trusting external partners. Other issues include resistance to change, lack
of purpose, organizational structure problems, and a culture that discourages collaboration.

Implementing supply chain management requires changing the way companies do business. A
company must be willing to:

1. Openly share information with suppliers and customers.

2. Create horizontal business processes.

3. Rely on a smaller number of outside suppliers.

4. Increase organizational and process flexibility.

5. Coordinate processes across organizational boundaries.

6. Empower employees to make process decisions.

7. Make real-time decision support systems available.

Each of these practices requires coordination and cooperation by employees in all supply chain
companies. These changes in business practices are not easy for companies to implement.
Information is generally viewed as providing an advantage over competitors and companies
resist sharing with their own partners. Organizations are traditionally structured along functional
boundaries and not aligned with business processes. As with JIT, reducing the number of
suppliers has been viewed as increasing the risk of being out of stock. Each of these elements
requires a trust factor never before seen by most companies.

10
4.3 EXAMPLES OF JUST IN TIME

Toyota

Toyota is famous for its implementation of a JIT inventory system. Toyota orders parts only
when it receives new orders from customers. The company started this method in the 1970s, and
it took over 15 years to perfect. Several elements of JIT manufacturing need to occur for Toyota
to succeed. The company must have steady production, high-quality workmanship, no machine
breakdowns at the plant, reliable suppliers, and quick ways to assemble machines that assemble
the vehicles. Toyota's JIT inventory system almost came to a crashing halt in February 1991[17].
A fire at Aisin, a Japanese-owned automotive parts supplier to Toyota, decimated its capacity to
produce a P-valve for Toyota vehicles. The company was the sole supplier of the part, and the
fact that the plant remained closed for weeks could have devastated Toyota's supply line.

The auto manufacturer ran out of P-valve parts after just one day. Production lines shut down for
two days until a supplier of Aisin could manufacture the valves. Other suppliers for Toyota also
had to shut down because the auto manufacturer did not need other parts to complete any cars on
the assembly line. The fire cost Toyota 160 billion yen in revenue and 70,000 cars, according to
a Japanese scholar quoting the Nikkei Weekly, but it could have been much worse.

Important factors to Toyota’s success

 Small quantities of raw material are kept at each station of production, assuring that there
is always enough inventory stock to start production of any product. This is also
replenished once used.
 Accurate forecasting to stock raw materials at the correct levels

Apple

Tech giant Apple has also leveraged JIT principles to make its manufacturing process a success.
Apple’s approach to JIT is different in that they leverage their suppliers to achieve JIT goals.

Apple has only one central warehouse in the US and about 150 key suppliers worldwide; they
developed strong and strategic relationships with their vendors. This outsourcing of production
made Apple leaner and resulted in slashing costs and reducing overstock.

11
With only one central warehouse in the US, most of their inventory is at their retail stores.
Adding further to the JIT mix, Apple began to take advantage of dropshipping. As a result, this
reduces shipping costs, wastage, and storage costs.

Important factors to Apple’s success

 A willingness of suppliers to keep inventory on hand allowing Apple to be free of this

responsibility
 Holding inventory at their retail stores
 Dropshipping arrangements for online purchases

McDonald’s

Fast-food chains such as McDonald’s use JIT inventory to serve their customers on a daily basis.
These fast food restaurants usually have everything they need on hand but for example, don’t
start assembling and making their hamburgers and sundaes until the order has been taken,
(except for a few finished products at peak times). This standardizes the process, so that every
time a customer receives an order, they are getting the same consistent experience [18].

Important factors to McDonald’s success

 Standardized procedures ensuring consistency

 JIT method increases customers satisfaction as items are made more freshly

5.0 CONCLUSION

The competitive environment of the future will require low cost, high quality products in a
greater variety. This will put further pressures on firms to increase their efficiency, flexibility,
and responsiveness. Some researchers foresee a business revolution with a new type of product
(or service) as its centerpiece. This product can be built with the latest innovations in information
processing, organizational dynamics, and manufacturing systems. The product will be available
at any time, in any place, and in any variety. They feel the closer a company gets to cost-
effective instantaneous production of mass-customized goods, the more competitive and
successful it will be [19]. While this approach may not be the answer for all industries, those that
attempt this state of competitiveness will require a high level of both internal and external

12
integration in order to react in a most timely and efficient manner. Supply chain management
techniques may make this possible,

Understanding how supply chain management relates to their current processes is the first step
toward integration. Their current processes may include elements of JIT. Where those elements
align well with supply chain elements, the company may find it easy to move to implementing
the corresponding supply chain element. Some supply chain elements may not align with any JIT
element and as such companies must evaluate their current capability on those elements. JIT
techniques may not be appropriate for all companies. That does not mean those companies are
not good candidates for supply chain implementation [20]. Regardless of their involvement in
JIT, companies implementing supply chain management must openly share information with
their supply chain partners.

Many JIT implementation problems are related to management commitment and willingness to
commit resources to employee empowerment and training. These factors are important in supply
chain implementations. Managers who have addressed them as part of a JIT implementation can
use that experience in their supply chain implementation. Supply chain management, like JIT,
involves integration in processes and _ integration between companies. The end result of these
advances will be greater end-use customer satisfaction by providing the desired product at the
right time at an acceptable cost.

REFERENCES

1. Aquilano, Nicholes J., Richard B. Chase and Mark M. Davis, Fundamentals of Operations
Management, Chicago, IL: Irwin, 1995, pp. 25-26.
2. Zipkin, Paul H., “Does Manufacturing Need a JIT Revolution?" Harvard Business Review,
(January-February 1991), pp. 40-43.
3. Lambert, Douglas M., Martha C., Cooper and Janus D. Pagh, “Supply Chain Management:
Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), pp. 1-18
4. Liker, Jeffrey K., “Becoming Lean”, Inside Stories of U.S. Manufacturers, Portland, OR:
Productivity Press, 1998, pp. 107-108

5. Giffi, Craig, Aleda V. Roth and Gregory M. Seal, Competing in World-Class Manufacturing:
America’s 21st Century Challenge, Homewood, IL: Business One- Irwin, 1990, pp. 221-222.

13
6. Stevens, George C., “Integrating the Supply Chain,” International Journal of Physical
Distribution & Materials Management, Vol. 19, No. 8 (1989), pp. 3-8.
7. Oliver, R. K. and M. D. Webber, Reprinted in Martin G. Christopher Logistics: The Strategic
Issues, London: Chapman & Hall, 1992, pp. 63-75.
8. Ellram, Lisa and Martha C. Cooper, “Characteristics of | Supply Chain Management and the
Implications for Purchasing and Logistics Strategy,” The International Journal of Logistics
Management, Vol. 4, No. 2 (1993), pp. 1-10.
9. Rosemary Peavler, 2019, Just-In-Time (JIT) Inventory Management,
https://www.thebalancesmb.com/just-in-time-jit-inventory-management-393301
10. Smith, Richard L. and Clyde kK. Walter Jr., “Is Newton’s Third Law of Motion JIT’s First
Law?,” Production and Inventory Management journal, Vol. 41, No. 1 (2000), pp. 13-18.
11. Anonymous, 2016, JIT System and Supply Chain Management- 5 Salient Features,
https://www.scmdojo.com/jit-system-and-supply-chain-management/
12. Caroline Banton, 2019, Just In Time (JIT), https://www.investopedia.com/terms/j/jit.asp
13. Rosemary Peavler, 2019, Just-In-Time (JIT) Inventory Management,
https://www.thebalancesmb.com/just-in-time-jit-inventory-management-393301
14. Anonymous, 2019, JIT – Just In Time Inventory Management – Definition, Elements &
Advantages, https://cleartax.in/s/just-in-time-jit-inventory-management
15. Lee, Hau L. and Corey Billington, “Managing Supply Chain Inventory: Pitfalls and
Opportunities,” Sloan Management Review, Vol. 33, No. 3 (1992), pp. 65-73.
16. Mariotti, John L., “The Trust Factor in Supply Chain Management,” Supply Chain
Management Review, Vol. 3, No. 1 (1999).
17. Anonymous, 2019, 3 Successful Companies Practicing Just-In-Time Systems,
https://www.unleashedsoftware.com/blog/3-successful-companies-practising-jit-systems
18. David Kiger, 2016, analyzing top examples of just in time inventory and production
management, https://davidkigerinfo.wordpress.com/2016/02/22/analyzing-top-examples-of-
just-in-time-inventory-and-production-management/
19. Lummus, Rhonda R. and Robert J. Vokurka, “Defining Supply Chain Management: A
Historical Perspective and Practical Guidelines,” Industrial Management & Data Systems,
Vol. 99, No. 1 & 2 (1999), pp. 11-17.
20. Davidow, William H. and Michael Planning,” Production and Inventory §S. Malone, The
Virtual Corporation: Management journal, Vol. 39, No. 3 (1998), Structuring and
Revitalizing the Corporation pp. 39-48. for the 21st Century, New York:

14