Just-in-Time (JIT) Inventory System

What JIT Is

Just-in-Time (JIT) is an inventory and production strategy that aligns material orders from suppliers directly with production schedules. Companies using JIT receive goods only as they are needed for manufacturing or sale, reducing inventory carrying costs and waste. JIT is closely associated with the Toyota Production System (TPS) and is also known by similar terms such as short-cycle manufacturing and continuous-flow manufacturing.

Key benefits at a glance:
* Low inventory levels and reduced storage costs
* Improved cash flow and lower working capital needs
* Faster changeovers and greater production flexibility
* Less waste from obsolescence or overproduction

How JIT Works

JIT minimizes on-hand inventory by timing purchases and deliveries to match production demand. A typical JIT operation coordinates:
* Accurate demand forecasting and short lead times
* Frequent, small-batch deliveries from suppliers
* Tight production scheduling and quick changeovers
* Close supplier relationships and reliable logistics

For example, an automaker using JIT orders parts only when customer orders trigger production, rather than stocking large parts inventories. This reduces warehouse space and the risk of surplus inventory if demand shifts.

Requirements for success
* Stable, predictable production schedules
* High-quality workmanship and consistent processes
* Well-maintained machinery to avoid breakdowns
* Reliable suppliers and resilient logistics
* Accurate forecasting and responsive planning systems

Advantages

• Lower inventory and storage costs
• Reduced waste and obsolescence
• Faster adaptation to product or demand changes
• Improved cash flow and capital efficiency
• Shorter production runs make product switching easier

Disadvantages and Risks

• Vulnerability to supply-chain disruptions (single-supplier or geographic concentration increases risk)
• Little buffer to absorb demand spikes or supplier delays
• Production can halt quickly if components are late or unavailable
• Requires robust supplier management and contingency planning

Real-world examples

Toyota: The most cited JIT practitioner, Toyota refined JIT through the Toyota Production System. In 1997 a fire at supplier Aisin halted production because Aisin was the sole source of a key part; the shutdown rippled through Toyota’s supply chain and cost the company substantial revenue. The incident highlights JIT’s sensitivity to single-point supplier failures.

COVID-19 disruptions: Sudden global demand surges and international transport interruptions early in the pandemic caused shortages of items like masks and hand sanitizer, demonstrating how JIT systems can struggle under large, unexpected shocks.

Special Consideration — Kanban

Kanban is a visual scheduling system often used with JIT and lean manufacturing. Developed at Toyota, kanban tracks work-in-process, measures lead and cycle times, and enforces limits on WIP to prevent overproduction. It helps identify bottlenecks and maintain flow across the production process.

Who Uses JIT

Industries that commonly adopt JIT include automotive and tech manufacturers, retailers, restaurants, and other businesses where short lead times, frequent replenishment, and close supplier relationships are feasible.

Is JIT Risky?

JIT reduces costs and increases responsiveness but raises operational risk if supply or demand shocks occur. Effective JIT implementations include contingency planning, supplier diversification, safety buffers for critical components, and strong logistics coordination to mitigate these risks.

Bottom Line

JIT is a powerful approach for reducing inventory costs, improving flexibility, and increasing efficiency when production is stable and suppliers are reliable. However, it requires disciplined processes, excellent supplier relationships, and contingency planning to manage the heightened exposure to supply-chain disruptions. When implemented thoughtfully, JIT can sharply improve operational and financial performance.