Just In Time, or Just In Case

Just In Time, or Just In Case

The modern system of inventory control is Just in Time, from the Toyota Production system. At best the vendor ships just in time for the operation to process and assemble components, and finished goods immediately go out to the customer. It is generally agreed that JIT demands the utmost in close scheduling, reliable vendors and supply chain cooperation; and results in best floor space utilization, lowest capital tied up in inventory, least spoilage and product damage, and best quality because any errors are caught more quickly.

The alternative is Just In Case; inventory is ordered in advance to allow for eventualities.

1. Products and their effect on inventory control.

A product with many component specification changes is better satisfied by a Just in Time system, which has more frequent shipments and smaller inventories on hand, so a spec change can be translated to the product more quickly. A spec change won't obsolete as many parts.

Products with a low incidence  of changes to go out of date may be satisfied by Just in Case.

 2. Geography

Near-by vendors fit a JIT system well, as they have a shorter distance, and less hazard of weather, social, or political impedances.

Vendors further away will cause a longer lead time to account for shipping, or cost more to use faster shipment methods. With a longer lead time, there is greater hazard of damage, product obsolescence, and of course inventory carrying cost.

3. Vendors

Vendors who are capable of the quick reaction, fast changes, low cycle time typically required by JIT are valuable in any case, to meet any quick schedule change. But even they will request a long term production plan, into which they will fit their short term deliveries. Remember that they do not like schedule changes any more than you do, and the reaction to your changes will be affected by their other customers as well as their basic capacity and changeover capability.  

The first course, Purchasing 101 says on the first page, "Thou shalt have at least two vendors for each part". JIT may be a sticking point for some vendors, and it may be harder to keep two vendors, each able to provide reliably.

4. Valuable, or commodity components

Commodity items, defined as being widely available for a basic price, lend themselves easily to JIT purchases. If a construction material, or standard bolt or screw is available at a chain store a few blocks away, there is no reason to stock large quantities. For many line items, the simple two-bin inventory plan works just fine; use from one bin and keep another in stores, and when the first is depleted, issue from the second and buy a replacement quantity. 

Items in an ABC breakdown may be rated A or B or C because of price, usage volume, floor space consumed, lead time, number of vendors who can make the part, technology, complexity. Don't overlook the supply parts, those not part of the product but perhaps a replacement part for a critical machine. Such parts should be kept Just in Case to avoid the serious potential of an interruption to production. 

5. Set up and batch costs

Don't overlook the old concept of Economic Order Quantity. This equation requires that you know the costs or ordering and of the changeover between batches. Even in this era of JIT and Single Minute Change of Die, EOQ can be valuable. An excellent article by Dave Piasecki of InventoryOps about it’s uses and misuse within modern inventory control systems.

Some components, for instance shipping cartons, still have a set up cost as part of their pricing. Cartons also are frequently purchased locally to reduce shipping cost. Large batches cut acquisition cost but raises storage and balance sheet value; smaller batches can be delivered JIT but at a higher acquisition cost. Reach the optimum price for these components by balancing cost and delivery.

6. Sales forecasting

In either JIT or JIC, a firm output forecast is vital to low costs. Forecasting can be difficult and subject to error at best, but failure to establish a firm (or frozen) forecast for a short term such as the next month will increase production costs. Setup and changeover cost will rise, scrap and down time are likely to increase.

7. Your computerized inventory control system and JIT

Please consider whether or not JIT is compatible with MRP, or ERP, or whatever computer software you rely on. Just ask the question of your inventory control system supplier, and listen carefully to the answers you get; to the practicality of the implementation suggestions; and judge for yourself whether you will reach the planned financial and organizational benefits of both systems at the same time.

Thanks for your attention; I'm happy to add to your perspective of industrial engineering and productivity.