In order to compete effectively, companies must be capable of manufacturing high-quality products at a low cost and also provide a first class customer services. In addition, they must have the flexibility to cope with short product life cycles, demands for greater product variety from more discriminating customers and increasing international competition (Talha 2002).
Just in Time (JIT), inventory replenishment system was pioneered by Toyota in Japan. In JIT system, the company follows pull system, where ideally the manufacturing and/or purchasing starts once the customer orders are received, to ensure zero inventories, i.e. material is purchased and produced only as much and when needed.
JIT is a management approach which originated in Japan in the 1950s. It was subsequently adopted by Toyota and many Japanese manufacturing establishments with considerable success in raising productivity by eliminating waste (Kaneko and Nojiri, 2008).
The implementation of JIT system requires infrastructure such as an efficient transport system, an electronic information network and a pool of reliable suppliers. In order to make JIT implementation successful, information sharing and a reliable electronic information network between the manufacturer and its suppliers is a must. Long term strategic symbiotic relationships with selective suppliers who can offer quality, lower costs, and punctual delivery are the key.
The relationship provides benefits to both producers and suppliers in the form of generating profit; reducing transaction costs and developing technology together Kaneko and Nojiri (2008).
Advantages to Vendor/Supplier/Manufacturer:
• Less amount of inventory storage reduces the need of storage space, thus administration and storage costs come down.
• Demand synchronized production leads to both less dead inventory and less stock-outs.
Advantages to Buyer/Customer/Retailer:
• Frequent stock turnarounds lead to a better flow of goods from the warehouse to the shelves.
• With inventory management issues out of mind, a higher emphasis is on building supplier relationships.
• The setup time is reduced considerably.
Easier said than done, implementing JIT is a long process and has many variables that need to be constantly managed and monitored to ensure its success. There are certain challenges that every firm planning to implement JIT faces:
• Lack of reliable supplier networks
• Lack of knowledge of immediate financial gains
• Lack of capital
• Lack of bargaining power with suppliers due to small firm size
• Lack of capacity to manage demand fluctuations without inventory
In addition to the above challenges, the fear of the risks involved also prevents organizations to go for the Just in Time System. In anticipation of situations, where something might go wrong, as zero inventories could potentially stop production, companies are reserved towards the idea of implementing JIT in their firms.
JIT in Apparel Industry:
The biggest and the most successful example of JIT implementation in our industry is of Zara. From its first store in Spain, Zara now expands to 1770 stores in around 86 countries globally. Zara’s competitive advantage being fast fashion, i.e. fashion aligned to the trends, with collections changing precisely twice a week in all its stores around the world.
A significant section of Zara’s manufacturing is in-house, which allows them flexibility, frequency, and variety advantages. The point of sales data is communicated by the store managers to the designers. This helps Zara to commit only 50% of its capacity in the starting of the season and leave the remaining 50% for mid-season manufacturing. Flexible extra shifts and temporary labor help Zara create extra capacity when needed. This translates into more customer footfall in their stores by creating an environment of time shortage and the opportunity to own the latest trends.
Thus effective JIT implementation allows Zara to make frequent changes in their designs, follow latest trends, and sell 85% of its line at full price, unlike its industry counterparts which average around 60-70% on sales at full pricing. Due to JIT, Zara’s unsold inventory accounts of only 10% of its stock, whereas the industry average is around 17-20% of the unsold stock.
Musara Mazanai (February 2012). Impact of just-in-time (JIT) inventory system on efficiency, quality, and flexibility among manufacturing sector, small and medium enterprise (SMEs) in South Africa. African Journal of Business Management Vol. 6(17), pp. 5786-5781.doi: 10.5897/AJBM12.148
Talha M (2002). Implication of Just-in-Time (JIT) on accounting. Delhi. Bus. Rev., 3(2).
Kaneko J, Nojiri W (2008). The logistics of Just‐in‐Time between parts suppliers and car assemblers in Japan. J. Transp. Geogr., Volume1, Pages: 155‐173.
Akbar Javadian Kootanaee, Dr. K. Nagendra Babu, Hamidreza Fooladi Talari (March 2003). Just-in-Time Manufacturing System: From Introduction to Implement. International Journal of Economics, Business, and Finance, Vol. 1, No. 2, PP: 07 – 25, ISSN: 2327-8188.