Dana Bell

I have heard people use the phrase "just in time" when describing supply or product acquisition. That phrase is actually a business "model" for inventory control, or "supply chain management".

JIT is one of many philosophies that has gained acceptance among administrators. There are no new discoveries, systems, or methods in JIT. JIT is simply a philosophy to minimize inventory, one that has been around for decades now. True JIT is designed to maintain inventory at minimum levels while insuring that needed inventory arrives just in time, no earlier and no later. In some cases, facilities may attempt to have NO inventory, where needed items are provided as a part of a stream, into receiving and out to the plant.

The effective application of JIT must take into consideration other factors, including the critical nature of the item. Medical supplies will be more cricital than office supplies, for example. In addition, there are added ordering and purchase costs (which also effects staffing requirements) with the JIT philosophy.

JIT is really no different than standard EOQ. In the calculation of EOQ in JIT, though, you inflate the dollar value assigned to inventory costs, not based on the actual costs, but in order to apply the philosophy of JIT. Indeed, if your company has limited cash, and you don't have the resources to calculate the cost of cash, JIT can improve cash flow.

Dave Piasecki had this to say about JIT in an article on Optimizing Economic Order Quantity (EOQ)...

Doesn’t EOQ conflict with Just-In-Time? While I don’t want to get into a long discussion on the misconceptions of what Just-In-Time (JIT) is, I will address the most common misunderstanding in which JIT is assumed to mean all components should arrive in the exact run quantities “just in time” for the production run. JIT is actually a quality initiative with the goal of eliminating wasted steps, wasted labor, and wasted cost. EOQ should be one of the tools used to achieve this.

Dave Piasecki, CPIM is owner of Inventory Operations Consulting LLC, a consulting firm serving Southeast Wisconsin and Northeast Illinois.

The real problem with JIT, though, is not the philosophy. Rather, it is the application. JIT is often implemented as a whim, as philosophy only. In such implementations, there are no cost calculations, no inventory analysis, and inventory levels are set based on subjective observation. They recite the mantra to minimize inventory, storage requirements, and cash outflow, but in the end, inventory rarely arrives on-time, stock outs are common, and the costs of expediting orders soar.

When this type of inventory system is applied to a Stores facility within a larger organization, the whole system could backfire. After some initial objections, some departments within an organization will quit complaining and start stocking up on the items that they get from that facility. In the end, service is minimized, inventory across the organization is maximized, total costs of operations increase, and the Stores facility becomes mostly useless. All the while the facility is tauting its success with JIT.