Just in time

What it means

Just in time, or JIT, is an approach to managing production and supply in which materials and parts arrive exactly when and in the quantity production needs them. The aim is minimal inventory, because every stock ties up cash, takes up space and hides problems in processes.

The method originated in the Japanese car industry as part of the Toyota Production System and underpins the lean approach. Production is driven by actual consumption, often through a kanban system in which only consumed material triggers replenishment, rather than a plan made months ahead.

JIT assumes stable production, reliable suppliers nearby, short and predictable lead times and close cooperation with them. Slovakia’s car industry, with deliveries straight to the assembly line in exact sequence, is a textbook example.

How it works in practice

Financially, JIT significantly reduces tied-up working capital: less money in the warehouse means more in the bank, less space and less obsolete stock. It shows up as higher inventory turnover and a shorter cash conversion cycle.

From an accounting and tax perspective JIT increases the number of deliveries and documents, so automation matters: electronic delivery notes, EDI with suppliers and accurate matching of goods received notes and invoices. Without it, the savings on inventory are lost in administration.

Smaller companies need not adopt JIT in full. Even a partial approach, such as ordering by actual consumption, agreeing more frequent smaller deliveries or using a supplier’s consignment stock, can bring savings without much risk.

What to watch out for

The biggest risk of JIT is vulnerability to disruption. The pandemic, border closures, chip shortages or a strike at a supplier have shown that without buffers production stops almost immediately. Many companies have therefore returned to a sensible safety stock for critical items.

The second mistake is implementing JIT merely by shifting inventory onto suppliers without cooperation. The supplier builds the stock into its price and the risk of disruption remains. JIT works when processes improve on both sides, not when the problem is simply moved.