Just-in-Time Stock Control: Benefits, Costs, and Optimization

Posted on Jan 31, 2025 in Business Administration and Innovation Management

Just-in-Time (JIT) Stock Control

Just-in-time (JIT) is a stock-control method that aims to avoid holding stocks. It requires supplies to arrive just as they are needed in production, and completed products are produced to order. JIT requires that no buffer stocks are held and components arrive just when they are needed.

Key Requirements for JIT Implementation

  • Excellent relationships with suppliers are essential.
  • Production staff must be multi-skilled and adaptable.
  • Equipment and machinery must be flexible.
  • Accurate demand forecasts are crucial for JIT success.
  • The latest IT equipment enhances JIT effectiveness.
  • Excellent employee-employer relationships are vital.
  • Quality must be everyone’s priority.

JIT Evaluation

JIT requires a very different organizational culture compared to other stock-control systems. The shift towards minimizing waste can greatly benefit a business. It requires staff to be more accountable and suppliers to be very reliable. There is no surplus or buffer.

JIT Suitability

JIT may not be suitable for all firms at all times:

  • If costs from production stops due to supply issues exceed the costs of holding buffer stocks.
  • Small firms may find the expensive IT systems needed for JIT not justifiable.
  • Rising global inflation may make holding raw material stocks more beneficial.

Advantages of JIT

  • Reduced capital invested in inventory.
  • Lower opportunity costs of holding stocks.
  • Reduced storage and stock holding costs.
  • Space released from stock holding can be used for other purposes.
  • Reduced risk of stock becoming outdated or obsolete.

Disadvantages of JIT

  • Increased delivery costs due to frequent small deliveries.
  • Higher order-administration costs due to numerous small orders.

Stock-Holding Costs

Opportunity costs, storage costs, risk of wastage and obsolescence.

Costs of Not Holding Stocks

Lost sales, idle production resources, expensive special orders, small order quantities.

Optimum Order Size

The purchasing stock manager must ensure the business receives supplies of the right quality. Continuous production should be ensured, and special order costs for out-of-stock materials should be unnecessary. Stock holding costs will be higher as large orders will have to be stored until they are needed. Opportunity costs will be higher as the large orders will have to be stored until needed.

Controlling Stock Levels – A Graphical Approach

Stock-control charts or graphs are widely used to monitor a firm’s stock position. These charts record stock levels, stock deliveries, buffer stocks, and maximum stock levels over time.

Key Figures in Stock Control Charts

  1. Buffer Stocks: The minimum stocks held to ensure production continues despite delivery delays or increased production rates. Greater uncertainty leads to higher buffer stock levels.
  2. Maximum Stock Level: Limited by space or the financial cost of holding high stock levels.
  3. Re-order Quantity: The number of units ordered each time.
  4. Lead Time: The normal time between ordering new stocks and their delivery.
  5. Re-order Stock Level: The stock level that triggers a new order to be sent to the supplier.