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Just-in-Time (JIT) Inventory is a management strategy where inventory is received or produced only as it is needed in the production process or to meet customer demand. The goal is to minimize inventory holding costs, reduce waste, and improve efficiency.

What Is Just-in-Time (JIT) Inventory?

Instead of stocking large amounts of raw materials or finished goods, a business using JIT keeps inventory levels low and relies on frequent, small deliveries to replenish stock only when required. JIT originated from Japan, notably Toyota’s production system.

Just-in-Time Inventory management

Benefits of JIT Inventory

  1. Lower Inventory Costs
    • Reduces storage, insurance, and handling costs.
    • Less cash is tied up in unsold stock.
  2. Reduced Waste
    • Less obsolete or expired inventory.
    • Encourages lean operations and process improvements.
  3. Improved Cash Flow
    • Capital isn’t locked in inventory; can be used elsewhere in the business.
  4. Better Supplier Relationships
    • Encourages strong, reliable partnerships with suppliers.
    • Suppliers become more integrated into the business process.
  5. Increased Efficiency
    • Streamlined operations with more focus on demand forecasting and scheduling.

Pitfalls of JIT Inventory

  1. Supply Chain Disruptions
    • Any delay or issue with suppliers (e.g., transport strikes, shortages) can halt operations.
  2. Demand Surges
    • Sudden increases in customer orders may not be fulfilled if there isn’t enough inventory.
  3. Higher Ordering Costs
    • Frequent smaller orders may lead to higher per-unit costs or shipping fees.
  4. Dependency on Reliable Suppliers
    • Businesses must depend on a tightly coordinated, dependable supply network.
  5. Technology Dependence
    • Often requires good inventory management systems and accurate demand forecasting.

How Can a Small Business Owner Manage Inventory with JIT?

  1. Start Small
    • Begin with a few fast-moving or predictable items before rolling out JIT across all products.
  2. Use Inventory Management Software
    • Cloud-based accounting software with inventory modules help track stock levels, automate reordering, and forecast demand.
  3. Build Strong Supplier Relationships
    • Choose suppliers who are reliable, responsive, and geographically close if possible.
    • Consider backup suppliers for critical items.
  4. Improve Forecasting
    • Use historical sales data, seasonal trends, and market insights to better predict demand.
  5. Maintain a Safety Buffer (Minimally)
    • While JIT aims for lean inventory, a small safety stock for high-risk items can protect against delays.
  6. Streamline Processes
    • Reduce internal inefficiencies in order processing, receiving, and production so that delays don’t add up.
  7. Regularly Review Performance
    • Track key metrics: stock turnover rate, backorders, lead times, and stockout frequency.

Example

Small Café Using JIT:

  • Orders fresh milk, pastries, and ingredients daily based on forecasted customer visits.
  • Uses a POS system to track real-time inventory and triggers automatic reordering.
  • Keeps minimal perishables on hand to avoid waste and spoilage.

While Just-in-Time (JIT) is more of a strategy than a strict formula, there are a few simple calculations small business owners can use to support JIT effectively — especially for reordering stock at the right time.

Let’s break it down with simple terms and formulas:

1. Reorder Point Formula

This is the most important formula to support JIT.

Reorder Point = Average Daily Usage × Lead Time

  • Average Daily Usage = How many units you typically sell or use per day.
  • Lead Time = How many days it takes for the supplier to deliver after you place an order.

Example:

  • You sell 10 units of coffee beans per day.
  • Your supplier takes 3 days to deliver after an order.

Reorder Point = 10 units/day × 3 days = 30 units

This means you should reorder when you have 30 units left in stock.

2. Safety Stock (Optional Buffer)

Sometimes you want to keep a small buffer just in case of delays or demand spikes.

Safety Stock = (Maximum Daily Usage × Maximum Lead Time) − (Average Daily Usage × Average Lead Time)

You can add safety stock to your reorder point if you want a cushion.

Example:

  • Max daily usage = 15 units
  • Max lead time = 5 days
  • Avg daily usage = 10 units
  • Avg lead time = 3 days

Safety Stock = (15×5) − (10×3) = 75 − 30 = 45 units

So now:

Reorder Point = (10 × 3) + 45 = 75 units

3. Order Quantity (How much to order)

In JIT, you usually order just enough to meet short-term demand, not a big bulk.

A simple method:

Order Quantity = Average Daily Usage × Delivery Frequency

Example:

  • You get deliveries every 3 days
  • You sell 10 units a day

Order Quantity = 10 × 3 = 30 units

Final Thoughts

JIT can be powerful for small businesses that want to stay lean, agile, and cost-efficient. However, success depends on solid planning, dependable suppliers, and accurate forecasting. It’s not a “set and forget” strategy—it requires ongoing management and responsiveness.