The just-in-time model was pioneered by Toyota Motor Corporation in 1977. It was based on the philosophy of Jidoka. Toyota interprets this philosophy as automation with a human touch. In their just-in-time delivery system, each process only produces enough for the next process to continue the flow.
The Japanese car manufacturer implemented just in time inventory management and saw significant success with this model. They were able to improve their productivity, maintain quality and reduce wastage. Thereafter, many organisations around the world adopted the just in time delivery model in several different industries.
What is Just in Time Delivery?
Just in Time Delivery is a management system that revolves around demand-oriented production. Also known as JIT delivery, the central idea of this strategy is to cut down inventory storage and wastage. In this process, you produce goods in a ready state or design the production process in such a way that minimum inventory levels can fulfil consumer demand.
Restaurants and food delivery systems are great examples of the just in time model. The inventory is kept in a ready state for the production of the ordered food. But, it is only put into the production process when the demand is recognised.
The restaurant does not have the food prepared in anticipation of an order. But, they keep the required inventory ready to process the order on demand. This is essentially how the just-in-time delivery system works.
You can adapt the just-in-time system at several different levels of the supply chain process. You can adapt it for manufacturing, warehousing, and distribution. You can also develop a just in time supply chain. This model would streamline the entire supply chain to operate on minimal resources required to fulfil customer demand.
But, as far as just in time delivery is concerned, you need to understand the demand and delivery lead time. Then you need to optimise the inventory management process based on these two factors.
What is Just in Time Delivery in eCommerce?
The just in time delivery system can offer many benefits for an eCommerce business. By implementing just in time delivery in eCommerce, you can control the inventory levels in your fulfilment centres. This means that you can carry out more order cycles using less space.
This can help cut down the cost of storage and inventory management. But, implementing just in time delivery in eCommerce requires rigorous planning and efficient execution. Here is how you can use JIT delivery in eCommerce:
- Use demand forecasting to estimate inventory requirements.
- Cut down production to minimum inventory levels based on demand forecast.
- Reduce the time in storage by optimising warehouse receiving and order fulfilment.
- Implement an efficient warehouse management process to enable faster fulfilment.
- Alter the production schedule based on estimated demand and inventory levels in storage.
- Use efficient logistics management to ensure less storage time and a faster delivery rate.
The just in time delivery system in eCommerce requires efficiency at each stage of the supply chain. You can use data analytics, software integration, and automation to streamline the process.
Example of Just in Time Delivery in eCommerce
Let’s understand the application of the JIT delivery model in eCommerce with an example. In eCommerce, the just in time delivery system heavily relies on demand forecasting. So for this just in time delivery example, let’s assume a demand forecast for 100 products in 20 days.
Alongside demand forecasting, we also need accurate estimation for different stages of the just-in-time supply chain. Let us assume the following time frames for this just-in-time delivery example:
- Raw Material Procurement: 1 Day
- Material Processing: 1 Day
- Product Manufacturing: 2 Days
- Distribution to Fulfilment Centre: 3 Days
- Processing at Warehouse: 1 Day
- Order Fulfilment: 2 Days
- Last Mile Delivery: 1 Day
Based on the above estimations, you would need 11 days to complete the order cycle from just in time manufacturing to order fulfilment. The goal of the JIT delivery model is to reduce the time in storage.
So if the demand is estimated on the 20th day and you need 3 days for shipping, you would need the products in your inventory on the 17th day. Similarly, you can calculate the deadlines for just in time manufacturing.
If the just in time distribution takes 3 days and manufacturing takes 2 days. Then you need to initiate production on the 12th day. You can reverse engineer the entire JIT supply chain based on the estimated time frames of each stage and demand forecast.
What are the Pros & Cons of Just in Time Delivery System?
The JIT delivery model has implications for several aspects of the supply chain. Adopting this system may require you to change certain aspects of the operations. Here are a few benefits and drawbacks of just in time delivery model that you should consider before making a decision.
Advantages of Just in Time Delivery Model
The JIT delivery system is a lean management system that focuses on minimising the utilisation of resources. It creates a lot of room to improve efficiency and reduce costs. Below are a few benefits of just in time delivery for companies:
Cut Down Costs
In the just in time delivery system you only procure goods based on demand. Hence, you are only purchasing a limited amount of inventory. As the purchased inventory is already based on demand, you do not have to risk wasting the inventory. All the purchased inventory gets utilised for producing goods and generating revenue.
You can save money wasted on unused or expired inventory. Furthermore, the just in time delivery model also helps you cut down warehousing and inventory management costs. As you get to use the same space to fulfil more orders, you save money on warehouse rent, maintenance, staffing, insurance, and more.
The just-in-time delivery model relies on the fast movement of products between production and distribution. One of the key aspects of this model is to minimise inventory storage time. In just-in-time inventory management, you keep the inventory levels balanced to the minimum required level.
The goods are brought into the warehouse based on the demand and expected delivery lead time. So you do not have to keep the products in storage for long periods of time. The products arrive in the warehouse with a fixed departure date.
This format allows you to use minimal storage space for several rotations. This can be quite advantageous for omnichannel retail as they have to supply products to many channels from the same storage space.
Greater Focus on Quality
The just-in-time delivery system allows you to cut down the quantity of inventory so you can focus on quality. It can be difficult to quality-check thousands of products in a given time frame. But, if you have to only analyse a few hundred products in the same time frame, you can pay more attention to each product.
This reduces the risk of procuring expired, defective, or outdated materials. This reduces the wastage of goods and saves money. Furthermore, you can ensure a quality standard for your customers. The limited quantity also reduces your dependence on large suppliers. You can diversify your supply chain by sourcing from different vendors of all sizes.
The just in time delivery model reduces your dependence on stored inventory. This allows more flexibility to shift various aspects of the supply chain. You can adapt just in time manufacturing to changes in market trends. Similarly, you can also shift just in time distribution to facilitate new target markets.
One of the biggest advantages of just in time delivery is that you do not have to wait until you exhaust the purchased inventory before adopting new trends. It gives you more flexibility to alter your business practices if the market trends change. This can be a major competitive advantage for brands that need to move with trends such as the fashion industry.
Disadvantages of Just in Time Delivery Model
Alongside the benefits of the just-in-time delivery system, there are also some disadvantages. This model is quite demanding and dependent on several factors. This creates some high-risk areas in just in time supply chain and consequently delivery. Here are a few disadvantages of the just in time delivery model that you should consider:
Dependence on Supplier’s Efficiency
Just in time delivery model relied heavily on the supplier’s ability to deliver the materials on time. As the entire system is time-bound, even minor delays can derail just in time supply chains.
Little Margin for Error
The JIT delivery model relies on accurate demand forecasts and minimal inventory storage. It has very little margin for error. Inaccurate demand forecasting can lead to overstocking or understocking.
Additionally, the company has no backup inventory to replace damaged or defective products in the supply chain. Even minor setbacks can result in failed deliveries or lost sales.
Coping with Demand Surges
It can be difficult for companies to handle sudden demand surges in just in time delivery system. The JIT delivery system uses a fixed inventory to fulfil a predefined demand. As there is no buffer inventory, a JIT supply chain cannot cope with demand surges.
The just-in-time delivery system can help you cut down inventory purchase size, optimise production cycles, save warehouse space, and reduce costs. But, this system is highly dependent on efficiency with little to no margin for error.
The just in time delivery model in eCommerce gives you the flexibility to modify the supply chain based on market trends and demand. At the same time, it is difficult to handle demand surges with just-in-delivery for eCommerce.