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A just-in-time (JIT) inventory system is one in which the inventory arrives only shortly before it is needed. Many large companies use this type of inventory system as opposed to warehousing large amounts of inventory at all times. This kind of inventory can present your business with some advantages, but it also comes with a few potential drawbacks.
Free Up Funds
One of the primary advantages of the just-in-time inventory system is that it helps free up resources that can be used better in other places. When you do not have to invest in a large amount of inventory, it could potentially save your business a large amount of money. This helps improve cash flow, and it can allow you to focus on other areas of your business instead of tying everything up in inventory.
Using this type of inventory also can help you reduce the amount of space that your business requires. Instead of having a large, sprawling warehouse to keep all of your inventory, you may be able to get by with a more modest space. This can allow you to rent a smaller building, which also helps you save money every month. The insurance requirements for your building also will be slightly lower than if you had to get a bigger building.
One of the potential drawbacks of using a just-in-time inventory system is that it can cost a substantial amount of money to implement. If you are used to one system that you have been using for years, you will have to go through the time and effort to switch over. You will have to train your employees to handle this type of inventory, which will require an investment in training. You have to gauge if the long-term benefits will outweigh the initial costs.
Potential for Delays
Another issue that often comes with this type of inventory is that you are totally dependent on your suppliers. If one of your suppliers does not come through according to the terms of your agreement, it can delay everything else in your business. When you do not have products to sell to the consumer, you will not be able to raise additional capital. This also can lead to unhappy customers and fewer repeat sales. You also may be paying your employees to stand around and wait for the inventory to arrive, and you may be even forced to pay them overtime to make a deadline a keep a customer happy.
Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.