Essay Sample: Navigating the Pros and Challenges of Just-in-Time (JIT) Inventory Management in Businesses

Inventory refers to a catalog of items, often held by a business for resale. Every company intends to maximize the profits that they obtain from the sale of these products. Managing an inventory has several advantages, including saving the company money and allowing customer satisfaction (Ziukov, 2016). However, having goods ready may sometimes force the sales team to reduce the initial cost to clear a sale. Also, the product in-store may not expressly meet the expectations of the customer. When goods have to be sold because they have been in stock for a longer time than expected, the intended profits are scarcely met by the sale. To cater for risks such as clearing sales, the Just in Time (JIT) inventory system has a diverse perception of when inventories should be made (Lai &Cheng 2016). The approach focuses on meeting the changing customer demand, reducing the number of defects, and minimizing inventory carrying costs.

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The JIT system suggests that a company should only produce an inventory at the order of the customer. The system advocates for companies to carry out little or no inventory at all. Japanese companies first came up with this approach. These companies realized that although carrying costs did not appear on the income statement like other significant costs; the carrying costs significantly affected the company's budget (Liu & Cheng, 2016). Although necessary, the cost of carrying out an inventory is costly. The balance sheet is an asset, but the cost implication the process leaves behind is visible. The JIT approach works towards solving the problem by reducing the cost of inventory. If companies keep no inventory or carry out little inventory, it is possible to cut the expenses initially caused by the planning and execution and manage inventory.

Besides, bulk inventory could have notable defects that are realized by the clients. When the recipients of the products come back with complaints, there is very little a company can correct the mistake. Apart from the risk of incurring losses concerning products with defects, customers may opt to purchase from a different company (Ziukov, 2016). With the current presence of social media platforms where the world has become a small village, it is easy for a few customers to cost the company its credit by posting unfavorable reviews. Many potential customers may lose interest in purchasing goods following a few reviews by unhappy customers. The JIT approach helps in similar situations since a customer only orders the production, so most likely, the product is not in bulk. Fewer products will incur fewer losses. Once the company learns that there is a defect in the product, it is possible to adjust the production process to improve its detected fault.

Customer demand changes over time. The inventory that is in the store may not have the specific features desired by the customer (Liu & Cheng, 2016). The company is likely to produce certain goods as they have always done in the past. However, the customer may have several modifications that they wish to make to the product. Production on order by the consumer of the goods allows the company to conform to the advancing demands. Competition from companies that produce similar goods is mostly based on quality. Therefore, the JIT system will grant the company an opportunity to upgrade a product's quality concerning the interested customer's descriptions.

In conclusion, the JIT approach is likely to influence the profits being made by a company positively. Even so, the risks the system poses are too huge to ignore. If not carefully thought through by the management of any company that intends to use the JIT approach, the outcome may be fatal. If customers present an order and set a limited amount of time to deliver the order, it only takes an aggressive team ready to provide the order in time. Suppose the stock of the materials for use in the production of the ordered item is out. The customer is likely to receive their order late. The sense of urgency that comes with demands presented with a timeframe is often for a reason. The customer will possibly prefer a company that has ready products the next time they require a product. Consequently, the production team must have a ready market that guarantees an instant supply of materials if the company is in urgent need.

Communication is critical to the success of any company. The diverse bodies of a company must have swift methods of communication when an order comes in. The financial department must be ready to support the production department for a quick response to customer orders. If the customer realizes that the company has no stock of the product they want to purchase, they may hesitate to order and wait for the product. Therefore, if the production team commits to completing the order within a specific time, they must ensure that they deliver as promised to the customer. The JIT approach can only be practical if the firm is informed enough about how the system works.

Also, all the company departments must play the designated role for the system to be successful. If the production team is ready to work but they lack the financial ability to purchase the necessary materials upon an order by a client, the plan to avail the products in time is likely to fail. Similarly, if the financial department is ready to avail financial support in time, but the production team presents their request late, the effort to meet the customer demand in time may not be possible. In the process of striving to produce quality items within a short time, employees may be required to provide additional support services to their colleagues. If the employees perceive the additional assignments as another person’s duty, it is possible that the task may not be carried out to perfection. Unless all the employees understand that it is necessary to work together, even when it means performing duties that are not within their job description, it is not possible to adopt the just-in-time system successfully. If the employees are not ready to adjust their schedules to work on orders on short notice, it may be impossible to deliver the orders on time.

References

Lai, K. H., & Cheng, T. E. (2016). Just-in-time logistics. CRC Press.

Ziukov, S. (2016). A literature review on models of inventory management under uncertainty.