![]() ![]() The production starts only when the order is received from the. For example, a car manufacturing plant might receive exactly the right number and type of tyres for one day’s production, and the supplier would be expected to deliver them to the correct loading bay on the production line within a very narrow time slot. On the other hand, the JIT supply chain management system works in reverse chronological order. Supplies are delivered right to the production line only when they are needed. ![]() Information is exchanged with suppliers and customers through EDI (Electronic Data Interchange) to help ensure that every detail is correct. Modern manufacturing firms use sophisticated production scheduling software to plan production for each period of time, which includes ordering the correct stock. This requires a carefully planned scheduling and flow of resources through the production process. This means that stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum. Demand-pull enables a firm to produce only what is required, in the correct quantity and at the correct time. If you’re interested in forging a career in accounting and finance, thorough knowledge of JIT is essential, and our CIMA and ACCA courses will equip you with the skills and insights needed.JIT is a ‘pull’ system of production, so actual orders provide a signal for when a product should be manufactured. While it is not without risks, it has significant rewards, and is ideal for those who are able to plan carefully in advance, and build strong relationships with suppliers. If run properly, JIT inventory management is seen as one of (if not the) best ways of managing inventory. Therefore, you need to factor that into planning for inventory levels, ensuring suppliers are able to meet different volume requirements at different times. Most companies have seasonal sales periods, meaning a number of products will need a higher stock level at certain times of the year due to higher demand. More planning required: With JIT inventory management, it’s imperative that companies understand their sales trends and variances in close detail. If you don’t meet your customers’ expectations, they could take their business elsewhere, which would have a huge impact on your business if this occurs often. Lack of control over time frame: Having to rely on the timeliness of suppliers for each order puts you at risk of delaying your customers’ receipt of goods. What if your supplier struggles with your requirements, or goes out of business? Can you get the products quickly from somewhere else? JIT means that you become extremely reliant on the consistency of your supply chain. You may need to form an exclusive agreement with suppliers that specifies supplying goods within a certain time frame, prioritising your company. Companies employ this inventory strategy. ![]() To do this, you need to have a good relationship with your supplier(s). The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Risk of running out of stock: By not carrying much stock, it is imperative you have the correct procedures in place to ensure stock can become readily available, and quickly. JIT unfortunately comes with a number of potential disadvantages, which can have a significant impact on the company if they occur. Disadvantages of just in time inventory management ![]()
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