Just-in-Time (JIT) manufacturing is guided by two principles - streamlining workflow and management. In terms of workflow, JIT aims to reduce turnaround times within a production system and also improve overall response times. As a management tool, it helps evolve production towards what the customer wants, and when they want it.
Traditional manufacturing is based on a calculated forecast of the volume of customer requirements. Manufacturers produce large volumes to achieve economies of scale. Benefits from volume purchase, better asset utilization and hedging against raw material price volatility drive manufacturers to process and produce over and above the order book. Most of these stocks later sit idly in storage units waiting to be ordered by customers. This type of production is sometimes called “just in Case” manufacturing. However, if a customer happens to order a product that is neither in stock nor in current production, it will take several weeks or even months to manufacture the requested product.
A JIT manufacturing system on the other hand employs simple visual tools like kanbans to align production processes with customer requirements. This greatly reduces the volume of stock held and minimizes lead time by a significant amount.
Across the lifecycle of the product from concept to market to retirement, order-to-cash (O2C) cycle is the most critical stage. It is the stage where all stakeholders like suppliers, manufacturers and customers converge to generate value for one another. The faster the O2C timeline, the faster is cash recovery. It becomes critical to minimize the O2C timeline to ensure that the interest of the customer converts to cash for the manufacturer.
JIT is key to achieving this goal. The advent of electronic data interchange (EDI) in manufacturing has helped manufacturers accelerate data flow between disparate enterprise systems and eliminate human error. JIT also ensures satisfaction for customers and vendors, as realization of revenues and values are quick across the entire value stream.
Reduction in inventory costs is one of the direct results of an effective JIT manufacturing system. Studies show that organizations have recorded as much as 80–90 percent reduction in inventory investment by implementing JIT. Holding and moving costs are seldom considered as value add. Hence minimizing inventory costs improves direct margin and eventually overall profitability.
The tight alignment of production based on customer requirements in JIT manufacturing helps avoid overstocking. Recent studies have shown that organizations claim 50 percent reduction in space requirements, and a 50 percent reduction in material handling equipment by implementing JIT.
One of the most important benefits of JIT is its effectiveness in reducing lead time. JIT implementation is capable of reducing lead time from weeks or months to few hours or days. Studies reveal that organizations have been able to achieve a reduction in lead time by 80 to 90% over a period of 5 years.
There are several benefits of JIT implementation, like reduced lead times, minimized cost of holding and swift time to market. However, there also exist certain potential risks, especially when it comes to smaller organizations. The proximity of suppliers and their ability to provide materials within limited notice will play a critical role in deciding the success of JIT implementation. Sometimes, minimum order policies can pose a risk to smaller manufacturers who might order smaller quantities of materials.
Agility in response to fluctuation in demand can only be enforced within reasonable limits. Sudden changes to demands driven by extraordinary circumstances can strain the manufacturing set up and supplier relationships. Seamless interaction between procurement, manufacturing, and suppliers along with other stakeholders is critical for success of JIT. If the required enterprise systems with the necessary interoperability integrations are not in place, it will be difficult to ensure just-in-time.