- In this video, you are going to learn just in time, or JIT. Just in time is an inventory management approach in which goods are received from suppliers only as they are required. The main purpose of this strategy is to decrease inventory holding costs and increase inventory turnover.

Here are the step-by-step process of how just in time works. Customer place an order. The manufacturer receives the order. Manufacturer orders the required materials from the supplier to fulfill the order. The supplier receives the order. The supplier delivers the required materials to the manufacturer. Materials are received by the manufacturer. Manufacturer converts the materials into product ordered. Manufacturer fulfills the order. Eventually, the customer receives the product.

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Here are some benefits of just in time. One, reduce inventory waste. A just in time method eliminates overproduction, which occurs when the supply of an item in the market overreaches to the demand and leads to an accumulation of unsaleable inventories. In a just in time method, you order only what you require. So there's no risk of accumulating useless inventory.

Two, decrease warehouse cost. In a just in time method, the warehouse holding costs are minimized. Because you order only when your customer places an order, your item is already marketed before it reaches you. So there is no need to keep your items for long.

Three, gives the manufacturer more control. In just in time, the manufacturer has entire control over the manufacturing process, which performs on a demand pull basis. They can respond to customers' requirements by quickly boosting the production for an in-demand product and decreasing the production for slow moving items.

Four, local sourcing-- since just in time needs you to start manufacturing only when an order is placed, you must source your raw materials locally, as they will be provided to your unit much faster. Furthermore, local sourcing decreases the transportation time and cost which is involved.

Five, smaller investments-- in a just in time approach, only essential stocks are purchased. And therefore, less working capital is required for finance procurement.

Let's discuss some disadvantages of just in time. One, risk of running out of stock. With just in time manufacturing, you do not have as much stock. This is because you base your stock off on demand projections. And if those are inaccurate, then you will not have the proper amount of stock readily available for your consumers.

Two, lack of control over time frame. Having to depend on the punctuality of suppliers for each order puts you at risk of delaying your customers' receipt of goods. If you don't satisfy your customers' expectations, they could shift their business elsewhere, which would have a massive impact on your business if this happens often.

Three, lack of planning. With just in time inventory management, it's crucial that companies understand their sales trends and clashes in close detail. Most businesses have seasonal sales periods, meaning a number of products will need a higher stock level at certain times of the year because of more increased demand. Here, just in time is not applicable due to lack of planning.

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