Just in time (JIT) inventory control systems occur when a business holds no stock and instead relies upon deliveries of raw materials and components to arrive exactly when they are needed.
Instead of occasional large deliveries to a warehouse, components arrive just when they are needed and are taken straight to the factory floor.
For just in time inventory control to be effective the business must have a good relationship with their suppliers.
The benefits of reduced warehouse costs must be balanced against the cost of more frequent deliveries and lost purchasing economies of scale from bulk buying discounts.
|Benefits of just-in-time inventory||Costs of just-in-time inventory|
|No money is tied up in inventory meaning it can be used elsewhere in the business||Delay in receiving orders from suppliers will lead to production having to stop|
|Less storage space/warehousing is required which will reduce costs||Lose out on economies of scale as fewer bulk orders will be required|
|Reduced wastage as less risk of stock going out of date or out of fashion||Stock being delivered frequently increases administration and delivery costs|
|Lower inventory levels are easier to monitor leading to less risk of theft||Difficulty coping with unexpected changes to demand leading to a loss of sales|
|Frequent delivery of stock increases carbon footprint damaging the image of the business|