How Does JIT Save Money?

The acronym JIT stands for “just in time.” Part of the Toyota Production System and Lean thinking, JIT delivery means the right things – parts, assemblies or finished products – arrive on a manufacturer’s production line when needed, neither earlier nor later. In practice, JIT depends on communications between a production line and a manufacturer’s logistics department, as well as a supplier’s ability to deliver as needed. If all parties are motivated, the just-in-time concept saves money by eliminating unprofitable activities.

Supermarkets stock their shelves based on customer demand. Customers know that goods will be available in the future and buy only what they need right now. As customers remove goods from the shelves – cans of beans, for example -- the supermarket staff restocks the shelf just in time, when they see only one or two cans of beans are left. In JIT manufacturing, a card or sticker near the bottom of a bin of parts warns workers when they are running out of parts. The workers notify a supervisor, and the supervisor has the receiving department deliver more parts to the workstation before workers run out of parts. JIT also means that as your customers run low on products, you deliver them to the customer just in time.

If you use warehouse space to store parts you need for production to store finished products in hopes of selling them, you’re wasting money by not shifting to JIT. JIT saves money by reducing the amount of warehouse space for parts, since parts arrive when needed. JIT allows you to have just enough warehouse space to store the parts you need until the next parts delivery. If you supply your customers with finished products when your customers need them – as their shelves grow empty -- you don’t need the warehouse space to store the products. This allows you to devote more space to profitable activities, such as another production line.

JIT requires you to base your production schedule on your customer’s needs. Not only do you save money by minimizing the warehouse space necessary to store completed products, you aren’t paying your employees for activities not focused on profitable activities. Ask any group of employees, and they’ll tell you they would rather “work steady” -- that is, at a steady, productive pace, rather than in spurts of stop-and-go activity. While worker satisfaction doesn’t save money directly, workers with a higher sense of satisfaction in their jobs are more likely to find ways to improve a production process.

When you implement JIT across your organization, you will expose changes that can improve quality or reduce your production costs. One of the principles of Lean management says that, as you evaluate your methods, you should determine what changes can optimize the process. When you implement these changes, step back and examine their effect on the production process. If the changes improve your product or lower your cost, make the changes permanent. Called the PDCA cycle – plan, do, check and act – this approach allows you to save money through small, incremental changes in your methods.

Because JIT depends on your suppliers providing components when required, motivating your suppliers is a crucial element of JIT. The benefits of JIT implementation include increased profitability through cost reduction, but JIT contracts may contain pitfalls if you are a supplier. According to Cambridge Property and Casualty, a firm providing manufacturers’ insurance, one major auto manufacturer charges suppliers who fail to deliver in time $500 for every minute that failure causes an assembly line to shut down.