What Is Just in Time Inventory? A Retailer’s Guide
This article is part of a larger series on Retail Management.
Just in time (JIT) inventory is when retailers have the exact amount of supplies they need to meet the exact demand on time, every time. The inventory management type was made famous by Toyota in the 1970s. The car manufacturer had tight inventory control in which it worked closely with raw materials suppliers to ensure it always had just the right amount of materials to meet demand—no more, no less.
Pros & Cons of Just in Time Inventory
PROS | CONS |
---|---|
More cash flow | Susceptible to supply chain disruptions |
Decreases expired or wasted inventory | Little room for error; requires excellent organization and reliable suppliers |
Lower inventory holding costs | Not environmentally friendly |
Easier to pivot product assortment | Potential for missed sales |
Less susceptible to theft | Higher per-unit costs |
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Who Should Use Just in Time Inventory?
Some retail industries and verticals are better suited for the JIT method than others. The niches below may benefit from JIT inventory.
- Fashion and apparel: You may have heard of the term “fast fashion” before. It’s essentially the rapid and affordable production of apparel products so businesses can capitalize on trends. Some sustainable and handmade brands also use the “made to order” model.
- Food and drink: Because food and beverages have shorter shelf lives, you don’t want to hold on to them for too long. As such, you may consider the JIT method to avoid spoiling and expired products.
- Print on demand: Print on demand businesses rely on the JIT method by nature. When a customer places an order, only then is a design printed on the item they purchased. T-shirts and art make great print on demand options. Note these products typically offer smaller profit margins.
- Cosmetics, beauty, and personal care: Similar to food and drink, many of these types of products have an expiration date.
- Florists: If you sell living flowers such as bouquets, you may look into using the JIT method. These products have a short shelf life, as well, and are seasonal.
Companies That Use Just in Time Inventory
Here are some examples of companies that use the JIT inventory method.
Apple
One well-cited example of the JIT method is Apple. Back when the company still sold the iPod, it adopted the JIT inventory method to optimize production. It outsourced many of its production needs to places with more affordable manufacturing and ended up cutting the production cycle from 90 days to just 90 hours.
Vigo Swim
Puerto Rico-based sustainable swimwear brand Vigo Swim uses the JIT method. However, its operations are on a much smaller scale than Apple’s. Every swimsuit is handmade, many of which are made to order (though the online retailer does offer a selection of ready-to-buy pieces). In this case, Vigo Swim is the manufacturer, so it has tighter control over operations.
The brand’s store policy.
(Source: Vigo Swim)
Grayton Watches
Grayton Watches sells “urban-inspired watches.” To raise awareness, it launched a marketing campaign in which influencers could design and customize a watch. As such, the brand needed a lean production process that would put products in people’s hands with little lead time. After implementing the JIT method, it was able to ship custom orders within 10 days of the purchase date—and it pumped capital into the business without making a major inventory investment.
Kellogg’s
Household snack and cereal brand Kellogg’s also uses JIT inventory, with manufacturing plants located all over the world. The Kellogg Planning System (KPS) divided the supply chain into three distinct sectors and then optimized each. It involves weekly and monthly check-ins, which frequently lead to millions of dollars in savings due to production cycle optimizations.
Bottom Line
Starting a retail business in 2022 involves a lot of decision-making—and one of those decisions is how to manage your inventory. The JIT inventory method is great for creating lean, agile operations that can respond to unexpected spikes and dips in demand. But it also has its challenges. It’s all a matter of analyzing your unique business needs to determine the best way to track your inventory.