Lower Costs with Just-in-Time
|Arla Wallace is an accounting professional with over 20 years experience. She spent several years working for both publicly-traded and private entities before founding her own business. Today she partners with small business owners so they can focus on operations while leaving the responsibility of staying on top of accounting tasks to her. She is a Certified Public Accountant (CPA) and a Certified ProAdvisor for Quickbooks Online.|
Lower Costs with Just-in-Time
Efficiency is a necessary component to the success of a small business. Inefficiency results in wasted time, money and resources. For product-based small businesses, inefficiencies in inventory management can serve to threaten the flow of cash. Just-in-Time (JIT) Inventory works to reduce both the investment needed in inventory and the working capital needs of a small business. With JIT, finished good delivery is precisely on time, including all components and sub-assemblies.
Reduce Storage Costs
Unlike Just-in-Case (JIC), the traditional inventory management system, JIT eliminates the need for a small business to warehouse excess inventory. Supplying customers with finished products as needed, reduces the amount of storage space required for parts and the space required to store finished products. With less funds tied up in renting and buying space to store inventory, funds can be invested elsewhere in the business.
Fulfilling orders on time as opposed to stocking up on inventory ahead of time equates to less waste. Conversely, components or products in a JIT system are made only in the quantities ordered, thus eliminating overproduction. When time is not being used efficiently, the costs of employee wages and fixed utilities are still incurred. With JIT, because the delivery of components is exactly on time, time is not wasted by employees waiting for the next production step. Components that do not meet specifications also lead to waste. Time spent on getting the production process right, as opposed to inspecting what went wrong, works to reduce the amount of product defects.
Lowers loss risk
In order to reduce backorders resulting from supply and demand uncertainties, JIC strategy focuses on maintaining excessive inventories. As a result, small businesses are forced to sink large amounts of capital into inventory. Moreover, there is no guarantee that every product you have in inventory will actually sell. To lower the risk of loss, JIT systems enable a small business to order smaller quantities of items at a time, giving them the flexibility to abandon products that do not sell well.
With JIT, customer needs drive production schedules. Accordingly, small businesses can synchronize employee hours and labor costs with demand. This not only helps the bottom line, but also allows employees to work at a steady pace and experience less idle time. JIT systems also encourage the use of a flexible workforce by moving workers where they are needed most. Employees can be trained in more than one area of the production process, which can lead to a higher level of job satisfaction.
JIT systems can increase the efficiency of a small business and help lower costs. However, moving from a JIC system to a JIT system can be complex to implement. Therefore, it is imperative that management study historical inventory data in order to identify when stocks would need to be replenished. Because suppliers play an important role in JIT, communication and sharing of information with suppliers is critical to the success of a small business in order to meet customer demand.