Key Takeaways

• Just-in-time logistics (JIT) is an inventory management system that allows companies to optimize inventory levels, reduce waste and improve efficiency by synchronizing the flow of materials with production and consumer demand.
• Organizations around the world have adopted JIT, which is particularly effective in the automotive, electronics, retail, pharmaceutical, food and beverage and e-commerce (product fulfillment) industries.
• JIT operates by synchronizing the flow of materials information and production activities to ensure that products are delivered with the desired quality when needed, which results in numerous benefits for companies, including reduced costs, improved cash flow, enhanced efficiency, increased customer satisfaction, improved product quality, supply chain optimization and reduced environmental footprint.
• One of the most effective ways to unleash the full potential of JIT is with data analytics.

Excess inventory and rising storage costs are eating away at companies’ bottom lines. In fact, in a recent CNBC Supply Chain Survey, more than half of the participating companies listed warehouse costs as the biggest inflationary pressure they face. To make matters worse, companies today must also deal with supply chain-related issues such as overloaded distribution centers, rising rents, labor shortages, shipping disruptions (and rate increases), reduced consumer demand and much more.

As a result, many companies are turning to an inventory management system first developed in Japan in the 1970s to combat these challenges and stop their negative impact on profits. This system, called just-in-time logistics, or JIT, allows companies to optimize inventory levels, reduce waste and improve efficiency by synchronizing the flow of materials with production and consumer demand. With JIT, instead of storing large amounts of products and materials, they are delivered at the exact time needed, in the required quantity and with the desired quality.

What is JIT Logistics?

JIT logistics is based on the Toyota Production System (TPS), created by Taiichi Ohno, an engineer working at Toyota in the 1970s. The primary objective of TPS, and ultimately the JIT system, is to eliminate waste and boost productivity by improving processes, reducing inventory and developing a more efficient production flow.

Over the last 40+ years, organizations around the world have adopted this inventory management system, which is particularly effective in the automotive, electronics, retail, pharmaceutical, food and beverage and e-commerce (product fulfillment) industries. The system is less effective for high-variability industries and those that have long-lead-time components, involve remote or difficult-to-access locations, or have unpredictable demand.

How JIT Works

JIT operates by synchronizing the flow of materials information and production activities to ensure that products are delivered with the desired quality when needed. This results in numerous benefits for companies, including reduced costs, improved cash flow, enhanced efficiency, increased customer satisfaction, improved product quality, supply chain optimization and reduced environmental footprint.

Companies highly value these improvements, especially during times like today, when there is high inflation and frequent supply chain challenges. According to the Logistics Managers’ Index (LMI), inventories are now growing at the fastest pace since the index debuted in 2016. The downside is that this growth is coming at the same time that warehouse prices are soaring. In fact, research indicates that industrial property rents are up by an average of 25% compared with the 2021 rates.

JIT logistics provide companies, including big brands like Target, Walmart and Amazon, with the ability to avoid large product storage costs and more nimbly react to consumer demand. For example, in its JIT logistics system, Walmart uses cross-docking, in which products are loaded directly from an inbound truck to an outbound truck to cut storage costs. Other companies that benefit from JIT include the following:

• Nike reported that it cut lead times by 40% and increased productivity by 20% when it implemented JIT at its facilities in Southeast Asia.
• Harley-Davidson USA reduced inventory by 75% and dramatically cut its warehousing costs with JIT.
• Dell Technologies used JIT to reduce costs and lead time and became a top computer producer. Instead of warehousing completed computers, the company orders parts only after a sale is made.

Data Analytics is Essential to JIT’s Success

JIT logistics incorporates several important components necessary for its success, including lean manufacturing, supplier integration, Kanban systems, continuous improvement, the technology of automation and global adoption. One of the most effective ways to unleash the full potential of JIT is with data analytics.

Companies can now quickly and easily generate five important types of data thanks to modern data analytics: inventory, supplier, transportation, quality and risk. These analytics are used to enhance JIT performance. Companies can more accurately forecast demand, stay on top of inventory in real time and identify potential risks to make better-informed decisions and quickly adapt to marketplace changes. Plus, the benefits data analytics offer to JIT will only increase as new technologies are developed.

Big data analytics, artificial intelligence (AI), blockchain, robotics and automation, cloud computing and augmented virtual reality will make it even easier to get detailed, precise analytics that can be used to improve JIT efficiency. For example, many companies use AI to get an up-to-the-second look at inventory, analyze trends and prepare accordingly. These companies state they are better able to predict delivery dates, more quickly determine product availability, increase productivity and improve shipping times.

For example, Amazon not only utilizes AI in its inventory management but also offers an AI-powered solution to other companies through its AWS Solutions division. The company says its system uses machine learning to create better demand forecasts and then leverages those forecasts to recommend specific inventory purchases.

Other Keys to Success

There are five key areas on which companies can focus to get the most benefit from JIT logistics. First, companies need accurate demand forecasting. This is where exceptional data analytics is essential. The good news is that the existing and developing technology is making it easier to get the precise data needed to make highly accurate demand forecasts. The second key also involves data analytics, using it to manage inventory. It is essential that companies have a good idea of how much inventory they need and when they need it so that they can avoid high storage costs. The other keys to success include reliable transportation to prevent supply chain delays, effective communication across the entire organization to streamline processes and enhance efficiency, and a company-wide commitment to quality. All company employees must understand the importance of quality and commit to maintaining this high-quality standard.

Quality issues, supply chain disruptions and lack of trust in an organization are the most common reasons that a switch to JIT won’t work. It’s important for companies to recognize these risks from the beginning and take steps to address them before they become problematic.

In addition to emphasizing quality and building trust, there are more steps companies can take to increase their chances of succeeding with JIT logistics. The first is to map out the entire supply chain and identify areas where bottlenecks or inefficiencies occur. Next, commit to improving data analytics by measuring every possible aspect of the supply chain and collecting as much good data as possible. Successful companies are committed to using that data to make accurate JIT predictions and seek to improve the process by continuing to generate data and track performance. They also understand fluctuation risk and that even the slightest variation in demand could have serious negative consequences. Companies that take these steps can streamline their supply chains and reduce costs when escalating costs and decreasing demand threaten their very existence.

New Version of an Old Approach

“Inflation’s inventory gluts are here to stay,” stated CNBC about its recent supply chain survey findings. In other words, companies can’t wait this out and hope the problem disappears. They need a new approach — or in this case, a five-decades-old approach that has been fine-tuned and adapted over time to fit today’s marketplace and includes such important concepts as lean manufacturing, automation technology, data management and supplier integration. JIT logistics helped Toyota achieve unprecedented manufacturing efficiency in the 1970s and has since helped numerous other organizations to get a better handle on inventory. It has proven to be a powerful tool for companies seeking to reduce costs, improve cash flow, improve product quality, increase customer satisfaction, enhance efficiency and optimize the supply chain. By utilizing JIT’s keys to success, companies can overcome supply chain challenges and reap the rewards of JIT logistics.