February 22nd, 2021
Nowadays Just-In-Time (JIT) manufacturing has become a well-known methodology that has been widely adopted across various industries worldwide. But there is one industry in particular that has paved the way to the just-in-time philosophy, and that’s one industry where this approach still reigns supreme: Automotive.
Now you might be wondering: What is JIT and what does it have to do with automotive? No worries, we are here to explain just that, and more importantly, to uncover what makes a just-in-time approach successful.
Just-In-Time (JIT) Manufacturing Explained
The essence of the just-in-time methodology is to produce only what is needed, when it is needed, and in the exact amount that is needed. In other words, JIT allows for just enough stock to fulfill an order, helping manufacturers to reduce inventory costs and waste while increasing supply chain efficiency.
The just-in-time manufacturing concept was first introduced by Toyota in post-World War II Japan. It was then referred to as the “Toyota Production System” (TPS), and its origins can be traced back to three main reasons: Japan’s lack of cash to invest in bulk inventory, a lack of space to build big factories and warehouses, and a lack of natural resources, which forced manufacturers to minimize consumption and inventory costs to remain competitive.
With this revolutionary approach, Toyota was in fact able to keep inventory levels low while reducing lead time on orders—Toyota would receive the raw materials in the factory and start building a car only after the end-customer had placed an order.
The idea was initially inspired by the way U.S. supermarkets replenish their products in response to the needs of their customers. However, the just-in-time inventory management and manufacturing system didn’t reach the attention of the U.S., or western countries in general, until the late 1970’s. That is when the TPS was fully developed and had proven to be a success.
Just-In-Case vs. Just-In-Time Manufacturing
As opposed to traditional or “Just-In-Case” (JIC) manufacturing in which manufacturers carry a very large stockpile of raw materials and finished products to use in the case of higher demand, JIT reduces waste by receiving the inventory only as needed for production.
Think of it this way: JIC manufacturers try to predict what their customers will want and stock up on materials ahead of time. They do this to avoid the risk of running out of stock due to an unexpected increase in demand, or worse, not being able to fulfill the order on time. This approach often leads to unnecessary costs and waste due to leftover, unsold items, as well as longer lead times.
Just-in-time manufacturing, on the other hand, massively reduces stock on hand, as well as lead times—sometimes from weeks to just a few hours. This also improves cash flow and efficiency. With a just-in-time inventory approach, there is no need to invest in warehouses as you don’t need to stock more than what is needed for production. Also, there is no need to spend big on an excess of raw materials, allowing manufacturers to cut costs and decrease waste.
It all sounds great, right? That’s because a JIT inventory approach offers many benefits when it is implemented correctly. But when it’s not, and if something goes wrong, the entire system goes down. If you think about it, in the JIT methodology, it only takes one supplier to deliver the wrong materials, or to deliver them late, to shut down the manufacturer’s entire production process. It only takes one hiccup, or one unpredictable event, to disrupt the entire supply chain—like the fire at one of Toyota’s parts suppliers back in 1997.
To be effective, the just-in-time system leaves no room for errors. Which bring us to the most important part. What makes a JIT inventory system successful?
The Crucial Role of EDI in Just-In-Time Inventory Management
So, what’s the secret to making this just-in-time magic happen? In one word: Automation.
Just like drop shipping, JIT manufacturing works on the concept of low inventory and storage investment. For JIT to work, collaboration with all suppliers and real-time inventory visibility are key, as is the ability to process orders just-in-time. Poor communication with suppliers can lead to late deliveries, as can incorrect data entry, which can result in ordering errors. EDI highly reduces risk when it comes to ensuring the right materials are delivered in the right quantities and at the right time.
By automating the exchange of business critical data, companies can gain real-time insights and visibility at each step of the process. This eliminates costly manual processing and human error. EDI and systems integration will help suppliers know exactly when it’s time to send the materials to the manufacturer’s factory. In turn, the manufacturer will know exactly when the materials have shipped and will be delivered to their factory. Should a problem arise, like the wrong number of SKUs in the purchase order acknowledgement for example, both manufacturer and supplier will be notified and can correct it before it’s too late.
One More Thing
As mentioned above, when JIT is coupled with EDI and systems integration, companies are able to drastically accelerate their supply chain operations while reducing waste and costs associated with inventory and manual processes.
Taking it one step further, manufacturers shouldn’t rely on a single supplier to source necessary materials. If something unexpected happens—going back to the 1997 fire—there has to be a plan B. That means having a back-up supplier ready to receive and process the order(s) even more quickly (ideally via EDI).
Looking for the right JIT automotive solutions? At TIE Kinetix, we have been providing EDI and supply chain solutions for 33+ years, helping manufacturers and their suppliers to implement successful just-in-time integration solutions.