Minimizing the Inventory Cost in the Production Management: Just in Time (JIT) Manufacturing System is a Mile Stone
Shirajul Islam
M. Phil Researcher, Jahangirnagar University, Savar, Dhaka
Abstract
This article explains how a firm manages her inventory to gain minimum production cost and earn business success by using JIT (Just in Time) Manufacturing System. It provides a mathematical framework to understand the performance of a farm, and argues that inventory cost minimization method is an approach that helps a farm to be competitive and successful. JIT inventory management system has been elaborated by reducing set-up times and lead times so that small lots may be ordered as and when required. The holding cost for space rent reduces
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Without inventories customers would have to wait until their orders were filled from a source or were manufactured. In general, however, customers will not or cannot be allowed to wait for long periods of time. At times the price of some raw materials used by manufacturers may exhibit considerable seasonal fluctuations. When the price is low, it is profitable for him to procure a sufficient quantity of it to last through the high price seasons and to keep it in inventory to be used as need in production.
Types of Inventories
Generally there are three types of inventory, which are Transaction Inventories, Speculative Inventory and Precautionary Inventory. Shortly these are explained below:
Transaction Inventory: It is formed basically of those items which are basically needed for transaction for example transaction of finished saleable products or transaction of raw materials.
Speculative Inventory: It is basically kept as a measure of speculation of increase in the price of raw material or increase the sale price of finished goods. It is generally resorted to before the budget proposals.
Precautionary Inventory: The machines are to be kept running. There may be breakdown of machines at any time due to damage of any part due to wear and tear. At that time it cannot be purchased immediately. Therefore, such items which are essential to keep the process running are to be stored like machine
The JIT approach to manufacturing involves timing the delivery of resources so that they arrive just when needed. Inventory optimization models help the firm determine how many of which items in which sizes should be delivered to each specific store during twice-weekly shipments, ensuring that each store is stocked with just what it needs. Trucks serve destinations that can be reached
Merchandising inventory is goods that have been acquired by a distributer, wholesaler, or retailer from suppliers with the intent of selling the goods to third parties. (Accountingtools.com, 2015) When choosing the type of method to use for merchandising inventory it is important for the business to understand what type of services or goods that are being provided. This can offer a better insight to the proper and most cost effective method. When deciding there are four types of inventory cost methods to elect from.
4) Exploring the possibility of implementing JIT (Just in Time) system that can reduce the finished goods inventory at
Merchandise Inventory is a material acquired by a retailer for the purpose of selling it to the third party. The three methods
Merchandising Inventory- These are items bought by the companies suppliers in order to keep stock.
Inventory- all the money that the system has invested in purchasing things it intends to sell.
Inventory is the total quantity of materials or goods contained in a factory or store at any given time. The owners of store need to be familiar with or know the exact figure of items on their storage areas and shelves in order to place losses or orders. Factory managers should know how the number of units of their goods that are available for client orders. The word inventory can be used for both the overall sum of goods and the work of summing them. In the case of racket science retailing, the company usually takes a record of its supplies on a regular manner in order to keep away from running out of common items. To some extent, the company takes inventory to make sure that the number of products ordered matches the real number of products or items counted physically. Normally, in cost accounting, averages or shortages after an inventory indicates a problem with theft (mostly referred to as 'shrinkage' in retails) or inaccurate accounting practices. Rocket science retailing also takes a record of stock after every trading
JIT is aimed to achieve Zero Inventory which is a stage in JIT system in which a company keeps minimum amount of inventory in storage and simply order the stock when a customer places an order or the need is generated, thus receiving in a timely manner. This is to reduce all the waste by building up the inventories by carrying only the required stock in hand. Zero inventory is an important concept as it is a key capability of the operation department to reduce waste in the form of misused and untapped resources. Thus it is an ideal situation of not keeping extra stock in the warehouses.
From the operations manager 's point of view, inventories are a tool which provide efficient operation of the production facilities. There are no specific level of inventories which are more desirable as they are allowed to fluctuate so that production can be adjusted to its most efficient level. (Meredith & Shafer. 2007)
Broyles, D., Beims, J., Franko, J., & Bergman, M. (2005, April). Academic Mind. Retrieved January 19, 2008, from http://www.academicmind.com/unpublishedpapers/business/operationsmanagement/2005-04-000aaf-just-in-time-inventory-management.html
Anybody who knows something about business had heard the term Just-in-time (JIT) inventory. It involves producing only what is need, when it is needed. The principle of Just in time is to eliminate sources of manufacturing waste by getting the right quantity of raw materials and producing the right quantity of products in the right place at the right time.(1) In this way, manufactures receive parts and materials "just in time" to meet the day's manufacturing quota with hardly any extra.(3)
Just in time (JIT) is a production strategy that strives to improve business efficiency and decrease waste by receiving goods that only needed in production process, thereby reducing inventory costs. JIT is a long term approach to process improvement which defines how inventory is viewed and how it relates to management. The philosophy of JIT is storage of unused inventory is a waste of resources and advocated inventory should come at the right time, in the right place and in the exact amount. It helps organization to expose the hidden costs of inventory, eliminate inventory that does not compensate for manufacturing process issues and constantly improve processes to require less inventory.
Besides, it also helps improving the product quality and the lead time reliability. Apart from these benefits, this model also ensures in reducing the material cost and increasing the production flexibility. Based on the findings of Ansari and Modarress (1988), product quality and productivity have essentially ameliorated when applying the JIT purchasing model in the production process.
A common way of decreasing the amount of inventory a business holds on a daily basis is implementing a just-in-time inventory process. A Just-In-Time inventory system means that the business gets the materials for a product, as they are demanded. “The electronic data
Lead production system was first introduced in 1940s by Taiichi Ohno at Toyota to reduce the cost of storage and the system was named as “Toyota Production System” (TPS) (Paton et al., 2011). Just in time (JIT) is a part of the popular TPS which is an inventory strategy that companies employ to make the exact number of items and only when they are required which is applied at every stage in a production chain. In other words, using a JIT supply chain system saves storage space by minimising stock on the premises. (Paton et al., 2011). This report makes an explorative study of the BMW’s supply chain which uses JIT as an operational improvement.