Cost Accounting

What is Just-in-Time Inventory System

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Just-in-time (JIT) inventory system is that raw material arrives at the firm exactly when it is required for the production process. The rationale behind the just-in-time (JIT) inventory system is that it reduces the carrying cost significantly inasmuch as raw material arrives at the firm exactly when it is required for the production process. JIT involves reducing the number of suppliers, streamlining the purchase procedure, redesigning the plant lay-out and proper control overproduction.

The suppliers should be few and well-chosen. The relationship with them should be close and well-regulated so that they supply defect-free, high-quality inputs. This ensures the manufacture of high-quality products as well as a reduction in pre-storage inspection cost.

As already stated, JIT ensures tuning of the consumption of raw material with its delivery time. If this is the case, the need for maintaining safety stocks can be avoided both at the suppliers and at the buyer’s end.

In order to make JIT successful, the supplier must be educated to cooperate. They must, of course, be in the close proximity to ensure timely delivery of the material. In many cases, the supplier maintains a warehouse in the buyer’s premises. Procedures need to be evolved in order to reduce the moving time with a view to reducing the inventory build-up along the moving line. The layout of the factory should be so designed as to minimise the distance over which the materials are moved.

The material delivery process should be also improved. However, the most important feature is the need to revamp the entire organisational structure to pursue the common goal of making JIT a success.

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