The ultimate guide to just-in-time (JIT) inventory management

As a business owner, having a warehouse stocked with piles of inventory ready to ship to excited customers might seem like the ultimate goal. But it isn’t, necessarily. 

Why? Because every inventory order comes with overhead costs, storage fees, and that nagging feeling that some of your precious purchases could end up as dead stock. 

So, what if there was a way to minimize those costs while keeping products flowing to your customers just when they need them? Now you’re talking! Welcome to the magic of just-in-time inventory management (JIT). 

Just-in-time inventory systems help businesses reduce waste, control costs, and maximize efficiency. Ready to stock up on knowledge and learn how? Then, let’s go! 

What is just-in-time inventory management?

The clue’s in the name! Just-in-time inventory is all about ordering products so they arrive exactly when needed—no earlier, no later. Whether you’re shipping directly to customers or using materials in your production processes, JIT can work wonders for you.

Traditional inventory methods tend to stockpile goods, leading to hefty holding costs and the risk of obsolescence. JIT flips that narrative on its head. A just-in-time inventory system helps a producer reduce costs by streamlining operations, minimizing waste, and freeing up valuable cash and storage space, all while maximizing turnover. It’s all about balance – and that eternal dance of finding the restocking sweet spot while also avoiding stock-outs. 

Take Toyota as an example. The company is well-known for utilizing a JIT model to ensure parts arrive just in time for assembly, slashing the need for excessive inventory while keeping production running smoothly. 

What’s more, Toyota isn’t the only big shot out there using just-in-time inventory systems. Other industry giants, like Apple, McDonald’s, and several retailers—including the flatpack giant, IKEA—have mastered the art of JIT to keep their operations lean and their supply chains nimble.

What are the benefits of JIT inventory management? 

There’s no denying it — a just-in-time inventory approach can be a total game-changer for businesses. After all, who wouldn’t love a leaner, more efficient supply chain? By focusing only on what’s needed and when, JIT helps you streamline operations, reduce waste, and boost profitability. Let’s break down some of the most significant bottom-line benefits.

1. Reduced inventory carrying costs

Minimizing the amount of money tied up in orders, shipments, and warehousing frees up a whole heap of extra working capital. Research shows that lean-operating companies can save 20-50% in warehousing and up to 40% in transportation. And that’s not all—you’ll also see a significant drop in insurance costs while gaining valuable storage space for more profitable items.

2. Improved cash flow

With just-in-time inventory management, there’s no need to shell out big bucks upfront for excess stock. The savings you make can be reinvested into other areas like research, product development, and marketing, driving growth and expansion. This, in turn, generates even more revenue, allowing you to continue reinvesting to fuel your ongoing growth cycle.

3. Enhanced customer satisfaction

Did someone say shorter manufacturing lead times? Just-in-time inventory systems make it easier to meet immediate consumer demand, ensuring customers get what they want, when they want it. But that’s just the tip of the iceberg. A JIT approach also enables you to:

• Offer customized products or variations with ease.
• Stay agile and respond swiftly when market demands shift.
• Enhance quality control and reduce the likelihood of defects or delays.

The result? Happy customers who keep coming back for more.

4. Reduced waste 

Another massive win with just-in-time inventory management? Less waste. And we’re not just talking about physical waste due to unsold, outdated stock cluttering up your warehouse—although that’s certainly part of it. A JIT approach also tackles inefficiencies like overproduction and redundant processes, contributing to more streamlined and sustainable operations overall. 

Who should use JIT inventory management? 

Not every business is cut out for just-in-time inventory management, and that’s okay. A JIT methodology typically works best for companies with predictable demand patterns, reliable suppliers, and a solid forecasting system. But, there’s a bit more to it than that. Let’s dig into the details. 

Ideal business profiles  

JIT systems aren’t a one-size-fits-all solution, but when they work, they can revolutionize the way companies manage their operations. A just-in-time inventory system usually reduces costs for the following types of business:

• Automotive manufacturing: Having parts arrive exactly when required keeps assembly lines running without interruption.
• Retail: Maintaining lean stock levels helps businesses selling fast-moving consumer goods (FMCG) and seasonal products avoid markdowns and unsold inventory.
• Electronics: Precise timing reduces the risk of costly waste and obsolescence for manufacturers using complex, high-tech, and high-cost components. 
• Food and beverage: Reducing stock levels creates less waste and ensures a faster inventory turnover for businesses dealing with perishable goods. 
• Apparel and fashion: Keeping stock on the shelves without overcommitting to unsold merchandise in the face of changing consumer preferences is often essential.

Self-evaluation framework

Sure, just-in-time inventory management can be transformative, but its success hinges on a few key factors. So, before diving in, it’s essential to take a step back and evaluate if your business is ready for this strategic shift. Ask yourself the following:

1. Do you have predictable demand patterns?

Predictable demand allows for precise planning. So, if your business experiences drastic fluctuations in demand or irregular purchasing cycles, implementing JIT might be challenging. 

2. Do you have access to real-time data and forecasting tools?

Without optimum inventory visibility, it’s almost impossible to make informed decisions about reordering or production timing. 

3. Are your suppliers flexible enough to deliver on short notice?

For JIT to be successful, your suppliers must have the capacity to react quickly to changes in order size or urgency. Otherwise, you’ll find yourself facing production disruptions or stockouts.

If you answered “yes” to all three questions, then JIT inventory management could be for you! 

How to successfully implement JIT in your business  

Here’s a step-by-step guide to help you set up a successful just-in-time inventory system while avoiding the most common pitfall—dreaded stockouts! 

1. Assess your demand

Start by understanding your order history, customer purchasing patterns, and seasonal trends. This will help you pinpoint which items are most in demand and when they tend to peak. Thankfully, leading inventory and warehouse management systems like Linnworks and Skuvault Core come with handy stock forecasting tools to help you predict future demand more accurately by reviewing historical sales data, identifying trends, analyzing purchasing habits, and monitoring suppliers’ lead times.

“Stock forecasting not only saves me a lot of time but also provides me with more accurate re-ordering figures.”

Graff City, Linnworks Client

2. Choose reliable suppliers

Your suppliers must be dependable, responsive, and capable of quick deliveries without compromising quality. The best suppliers understand your JIT needs and can meet short lead times. The more aligned you are, the smoother your operations will run. So, consider diversifying your supplier base to ensure flexible, scalable solutions.

3. Track your inventory in real time

Real-time data empowers you to make timely, informed stock level and replenishment decisions. Dedicated inventory and warehouse management solutions track inventory levels in real time, automate reordering, and even send restocking alerts when inventory is running low. 

Top tip: Look for software that integrates seamlessly with your supply chain and sales platforms to ensure all your systems are in sync. 

4. Train your team

For just-in-time inventory systems to work, everyone must be on the same page to avoid miscommunication and inefficiencies. So, you’ll need to provide comprehensive training to ensure everyone—from warehouse staff to the purchasing team—knows how to manage inventory, track product levels, and handle reorder triggers. 

5. Run regular inventory audits

To prevent overselling and stockouts, regular inventory audits are a must. The best methodology for just-in-time inventory management is usually cycle counting, as it removes the complexity (and the ear factor!) of running physical counts of your entire inventory.  By consistently counting portions of inventory at specific intervals, it becomes easier to detect and correct discrepancies and minimize the risk of human error that typically accompany large-scale counts.

Here’s a quick explainer video about how cycle counting works.

6. Monitor and adjust

The beauty of just-in-time inventory management lies in its flexibility. However, for it to remain effective, continual performance monitoring is essential. You’ll need to regularly assess key performance indicators (KPIs) like stock turnover rate, lead time, and fill rate to identify and remove any bottlenecks in your supply chain for optimum efficiency. 

Which tools and technologies support JIT inventory management? 

There are several stand-alone processes that can help when you’re transitioning to a JIT system. A few notable examples include:

• Barcode/RFID systems: Barcode and RFID systems allow for quick and error-free stocktaking, real-time updates, and streamlined order processing. 
• Reorder alerts: Receiving notifications when stock levels are running low is essential in ensuring a steady flow of products and protecting against stockouts.
• Order tracking: Working with suppliers that provide real-time tracking means you’ll always know what’s where—and, most importantly, if items will be where you need them, when you want them. 

While these workflows are all helpful, the most failsafe way to ensure your JIT plans go off without a hitch is to invest in dedicated inventory management software. 

Inventory management software

Inventory management software is the backbone of any effective JIT system. The best inventory management platforms encompass the processes listed above by default. Plus, they feature additional high-tech tools to help optimize warehouse processes and increase supply chain visibility to ensure you’re always operating with the right amount of stock.

Truth be told, there’s not much that dedicated inventory management software can’t help you with. Here’s a quick video short starring some familiar Linnworks faces to give a quick overview of the how’s and why’s.

How Linnworks and SkuVault Core can help you get JIT inventory management right 

With the winning combination of Linnworks and SkuVault by your side, you can conquer the challenges of just-in-time inventory with confidence, safe in the knowledge that your operations are optimized for success.

Linnworks arms you with a treasure trove of tools for streamlining and automation, from listing management to order processing to shipping and multichannel integration, ensuring maximum efficiency and profitability.

Meanwhile, SkuVault has all the savvy software you need to ensure flawless inventory flow, allowing you to track every SKU in real time and push and pull inventory between systems (and locations!) quickly and precisely.

“SkuVault Core is our source of truth, allowing us to be lean and highly profitable.”

 Tim Juengst, Director, Operations, Austin City Limits

Want to learn more? Then take one of these actions today before you click away to your next task:

• Check out our client case studies to learn how we’ve helped other organizations thrive.
• Sign up for a free demo.
• Take our software for a spin on a quick interactive product tour. 

You won’t regret it, we promise!  

FAQs

As usual, we’ll close with a quick summary in FAQ form. 

What is just-in-time inventory (JIT) management?

JIT is a strategy where businesses order and receive stock only as it’s needed, reducing the need for excess inventory and minimizing holding costs. The goal is to keep inventory levels lean and operations smooth, ensuring products arrive just when they’re required for production or sale.

How does switching to a JIT inventory model help businesses save money?

A just-in-time inventory system allows a firm to eliminate costs associated with storing, insuring, and managing large amounts of inventory. It also frees up cash that would otherwise be tied up in unsold stock and obsolete products.

What industries does a JIT usually work best for?

While suitable for any business with predictable demand patterns, reliable suppliers, and a solid forecasting system, just-in-time inventory systems are most common in the automotive manufacturing, electronics, retail, apparel, and food and beverage sectors. 

What is a downfall to just-in-time manufacturing and inventory management?

The most significant issue is that it’s a supplier-reliant model of operation. So, businesses must always have their eyes peeled for supply chain disruptions that could cause stockouts.