Just in Time production and its benefits

 
Amancio Ortega is a founing chairman of Inditex fashion group. He looks after more than 6000 stores in 88 countries. He is most famous for creating ZARA, the retailer. 

ZARA chain uses the just in time(JIT) method of production. In JIT inventory is kept to minimum. The basic assumption of JIT is that inventory is a liability rather than an asset and therefore, should be kept to minimum. Resultantly, capital invested in inventory can be directed to other uses. With less capital tied up in inventory the return on investment can be enhanced.

Most people, in management, think JIT as only inventory management technique rather than as a way of thinking to solve problems. With reduced inventory level, the focus is shifted towards quality production. 

With reduced level of inventory the risk of obsolescence is reduced. The cost on storage can also be saved.

Manufacturing executive understands the importance of JIT but think that their operations are not fit to make transition over to JIT.
Many successful companies are using JIT. A list of companies using JIT includes names like NIKE, Toyata, Hawlette Packard etc. Infact, JIT was born in Toyata.  Although it failed initially in Toyota because its geographical disperse.

Later on it was adopted by other automobile manufacturers. Today it is being used in many of top companies in industries as diverse as computer industry to fashion.

The biggest impact of JIT is not on inventory and ROI but the way it exposes problems in supply chain, which needs to be resolved. And this is where executive think JIT can be hurdle rather than support.

As with other techniques, JIT has its own set of flaws. The reduced level of inventory increases the risk associated with supplier’s failure. Toyota lost billions when plant of one of its supplier caught fire.  

Suppliers are the most important piece in JIT.  For succeeding in JIT you need to have reliable suppliers, who can supply you quality product without delay. A supplier than would ask for a bit more money to compensate for the added reliability.

JIT, for its profitable implementation needs to have some prerequisites. A company can only make transition over to JIT if its cost of storage increases sharply with increase in inventory. Moreover, ordering cost should be negligible.

Generally companies starts to implement JIT from suppliers. Sooner they get fed up with unavailability of JIT suppliers, the one who is willing and able to supply right thing, at the right time, and in right quantity. It is advisable for these companies to start implementing JIT from assembly level to backward the supply chain. Rather than having ready prepared finished goods, they should assembly their products when ordered by customer. Gradually, workers would start having components in easy to assemble form.