Friday, December 9, 2011

Production management - JIT Inventory Control (Week #7)

Production Management #19 Pro’s & Con’s of JIT Inventory Control

What are the pro’s and con’s of JIT inventory control?

First, what do we mean by just in time inventory control? The concept is to reduce the amount of inventory that is on hand at any given time, which reduces overhead cost. Secondly, additional warehouse or space requirements can be reduced because of only keeping small amounts of inventory on hand. JIT saves money bottom line the manufacturer but make increase overhead for the supplier.

The biggest pro to just in time frees up resources. Retail stores do not need as much space requirements because items are replenished as they are sold. Manufacturers are able to free up both space requirements and labor. The processes can become more stream lined.

A major disadvantage is the complexity. Management must rethink the entire workflow of the company. JIT means just enough raw materials, assembly parts; products etc only have a short period of flow. If the item it not restock, supplied delivered then you process stops until the product is available. It puts a tremendous amount of pressure on the supply chain members. In certain types of industries where the machinery must continue running then this type system make not be beneficial.

JIT concept has worked well in the automotive industry. Companies are able to make large reductions in cash outlay resulting in huge savings. Dell the computer company has adopted a philosophy “only manufacture what their ask them to make and when they ask them.” Dell has benefited in higher profit margins and reduced their overall cost in production by adopting this approach.

JIT has both advantages and disadvantages for companies. Every business must determine if it is beneficial for their business model.

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