Just in time inventory, also known as JIT inventory, is the reduced amount of inventory owned by a business after it installs a just-in-time manufacturing system. It is a management strategy that aligns raw-material orders from suppliers directly with production schedules. The intent of a JIT system is to ensure that the components and sub-assemblies used to create finished goods are delivered to the production area exactly on time.
Disadvantages of Just in Time (JIT) Inventory
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Low Just in Time (JIT) inventory levels makes it more likely that any problem in the supplier pipeline will lead to a shortage that will stop production. This risk can be mitigated through the use of expensive overnight delivery services when shortages occur.
If a raw materials supplier has a breakdown and cannot deliver the goods on time, one supplier can shut down the entire production process. A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.
Some disadvantages associated with just-in-time inventory –
- A supplier that does not deliver goods to the company exactly on time and in the correct amounts could seriously impact the production process.
- A natural disaster could interfere with the flow of goods to the company from suppliers, which could halt production almost at once.
- An investment should be made in information technology to link the computer systems of the company and its suppliers so that they can coordinate the delivery of parts and materials.
- A company may not be able to immediately meet the requirements of a massive and unexpected order since it has few or no stocks of finished goods.
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