Supply chains can be complicated, slow, and inefficient. They are sensitive to changes in the market, as the Covid-19 pandemic demonstrated, which resulted in rows of empty shelves and long waits for deliveries.
With growing competition and increasing pressure to boost profitability, many organizations are adopting Just-In-Time delivery, frequently known as JIT. Car giant Toyota pioneered this method and credits its success in part to this method.
Many ecommerce retailers have adopted Just-In-Time delivery to optimize inventory management and ensure customer satisfaction. However, this method is not without its cons, and is not a realistic model for every business out there. We delve into the pros and cons of Just-In-Time delivery for ecommerce businesses.
JIT is an inventory management strategy that aligns raw material delivery to specific production cycles, so that materials arrive as production is scheduled, but no sooner. Effectively, it means a company has the minimum amount of inventory on-hand to meet demand.
Not keeping so many items on hand, which is expensive to store, frees up capital to invest in other areas of business, which is what makes JIT a lean approach.
This works particularly well for businesses that use a make-to-order model and businesses in areas with good transportation links, which means receiving stock is easier.
Toyota developed the origins of this system in the 1970s as a response to its growing economic crises post-World War 2. Its objective was to make vehicles ordered by customers in the quickest and most efficient way. Fast-forward 50 years, and this approach has become the industry standard.
Case Study: ToyotaThe pioneer of this method, Toyota, has a lean system for manufacturing. When a vehicle order is received, a production instruction is issued to the production line as soon as possible.
This approach here means that individual cars can be built to order. Every component for the models has to fit perfectly the first time because there are no alternatives available.
Greater order accuracy
With good organization and inventory management, orders should be more accurate with less risk of mistakes, since parts are automatically added to the supply chain immediately as they are received.
Reduced storage costs
The cost of storage space adds up fast, and so one of the biggest benefits of JIT is cost saving in this area – you only need the space for the parts to fulfill orders, and no more. In fact, implementing JIT has allowed some businesses to see a reduction of held stock of up to 90%.
One of the biggest advantages of JIT is that it reduces waste. At a time where companies are being prompted to consider how to reduce waste to help the environment, adopting JIT is just one way to achieve a reduction. Here are some of the ways JIT reduces waste:
- Storage space: Less stock is held at a given time, with a focus only on what’s needed
- Inventory: Inventory is only received as it’s needed for production, so JIT reduces the need to order large bulk inventory batches with some sitting around for a while.
- Processing: Larger orders means more products to process and keep a track of whilst with JIT you only have the stock required to fulfill exact orders
- Money: JIT saves money by reducing the amount of warehouse space for parts. Plus, companies spend a smaller amount of money on raw materials since they only buy what is absolutely necessary to product orders. It also avoids items sitting on shelves depreciating in value if sales take a downturn.
- Time: Less time is spent waiting for large orders to arrive
- Labor: Labor is reduced as the workforce required to fulfill orders is less.
Improved inventory management
JIT inventory management boosts a company’s net profit by lowering inventory carrying costs, increasing efficiency, and decreasing waste. This strategy helps companies lower their inventory carrying costs through eliminating overproduction – whereby the supply of an item exceeds demand, resulting in dead stock.
Reduced shipping times
If you use an outsourced JIT provider, they will have a network of distribution centers across certain regions, making orders quicker to receive. The localization of this method means shipping times are greatly reduced.
Case Study: DellDell was arguably the first in the computer hardware industry to implement the Just-In-Time model. Dell used the information it had collected over the years to predict customers’ buying patterns and forecast manufacturing requirements.
Dell does not build a computer unless it has been ordered and credit cleared – taking no risks. Dell’s factory has no warehouses as they have reduced inventory to a minimum.
JIT can be hard to execute
In reality, JIT leaves little room for error. It can be difficult for companies to find suppliers who are willing to fulfill frequent small orders at a short notice, which is why this method is easier if your supplier is local, and if your transportation networks are good.
Ordering many small orders frequently can actually be more expensive in the long run. A company that operates this way may find it hard to handle a sudden surge in demand for a product.
Danger of supply chain failure
As demonstrated by the Covid-19 pandemic, large-scale events like pandemics, natural disasters, political instability, or material shortages can lead to delivery delays and unhappy customers.
If you have no back stock of materials, the effects are even more pronounced. Covid-19 challenged the JIT system with some stating that the pandemic demonstrated the system’s fragility.
Tight planning needed
The JIT approach is reliant on stringent time and solid inventory planning to avoid mistakes or delays meaning your orders have to be accurate since mistakes could upset customers and cost you money.
In fact, incorrect orders are one of the leading customer complaints for businesses that deliver. Therefore, you need to aim for a high order accuracy rate, meaning your customers almost always receive the exact items they order in the proper condition.
A stockout occurs when customer orders for a product exceed the amount of inventory kept on hand, caused by a sudden jump in demand. If you are unprepared for this jump, you’re likely to have delays and problems in getting the products to your customers, leading to lower customer satisfaction.
Frequent small orders can cost you
Smaller orders mean spending less per shipment, but can actually end up costing more in the long-term.
Businesses with high production levels benefit from the economy of scale – as production increases, the average cost of producing each item decreases, and that’s good news for the accounts!
Therefore, companies using JIT may pay a higher amount for smaller orders since they don’t qualify for price breaks.
Keep an eye on data and closely monitor stocks
Stock monitoring includes:
- Accurately labeling items
- Monitoring stock levels
- Setting thresholds
- Labeling product statuses
With the help of digital tools, you can streamline this process.
The use of real-time data enables you to measure your needs and future inventory. JIT is reliant on your past supply, so this technology can analyze previous trends in order to make future predictions.
Outsource fulfillment – use a 3PL provider
Ecommerce businesses can have peace of mind by outsourcing JIT delivery to an experienced 3PL provider. 3PLs – third party logistics – is a service that allows you to outsource operational logistics from warehousing, all the way through to delivery, and enables you to focus on other parts of your business.
Most 3PLs have access to lower shipping rates due to the volume of orders they place. They also have relationships with their own warehouses, which saves you the time in finding a suitable and affordable one.
Similarly with staffing, providing your own logistics team is a large undertaking. 3PL enables you to work with a provider who already has teams in place, which takes staffing away from you.
Consider multiple suppliers
Although working with multiple suppliers can complicate your supply chain, it also alleviates certain risks. Using one supplier means you are reliant on them only and vulnerable to supply issues or staffing issues. If they suddenly go out of business or are unable to meet your demand, this will disrupt your orders.
Case Study: AppleTim Cook’s job as COO was to implement JIT manufacturing. He closed many of Apple’s factories and warehouses and instead established relationships with contract manufacturers. He reduced the amount of time inventory was on the company balance sheet from months to days and bolstered Apple’s ability to launch, manufacture, and ship millions of iPhones around the world like clockwork.
Although JIT is not completely risk-proof, there are many advantages if you have a proven, reliable supply chain and accurate demand planning. Years of proof of large, successful companies using this method show that it is valuable in improving efficiency and reducing waste.
Retail, fast food, technology manufacturing, hospitality, on-demand publishing, tech manufacturing, and automobile manufacturing are some examples of industries that have benefited from JIT inventory.