Look at any successful construction company, and you will see tons of efficiencies. Every working body has its purpose; every resource is being maximized and adequately utilized. Which leads us to the question— how does a company get to this point of success? One way to attain this is by adopting a well-understood inventory management strategy — the Just In Time inventory method.
Just In Time inventory or JIT is an inventory system that is becoming more popular for construction companies looking to cut costs, operate more smoothly, and get organized. Ultimately, the main objective of the JIT method is to minimize inventory and maximize efficiency. By intentionally keeping inventory supplies low at all times and ordering items only when needed, you can trim down cost, reduce wasted time, get rid of the unnecessary stress of re-ordering just because.
In today’s blog, we will dive deeper into the concept of the Just In Time method, how it works, its pros and cons, and how this construction inventory management system can help your company be as profitable as it can be.
A Brief History of Just In Time Inventory Method
Because of the limited options to expand factories and low funds post-war, the Just In Time inventory system came to life in Japan. Japanese businesses started using a specific method of ordering inventory only when there was a buyer. It started gaining international popularity when Toyota began to using JIT for their business processes in the 1970s. They ordered parts for cars only when customers placed orders for vehicles.
However, it wasn’t smooth sailing from the get-go. In 1997, Aisin- one of their brake parts suppliers- had a fire that stalled the manufacturing of car brakes, giving Toyota no choice but to make a full stop production on cars.
This caused Toyota almost $15 billion in lost revenue. Even so, Toyota, as we all know, was able to make a comeback over time and is still standing as one of the leading automotive corporations in the world.
What is Just in Time Inventory (JIT)?
Generally, the JIT inventory system in one sentence is having the lowest inventory quantity possible. In order to keep inventory levels at the absolute lowest point, a company only orders inventory when a customer makes a purchase. An easy way to look at this is to think of the JIT method as made to order. When there is a client, it’s only when you make an inventory order.
An example in the construction industry is this: You are a subcontractor company offering door installation services. You can order a large number of doors at a time, but because of how fragile they are, the longer they sit idly in the warehouse, the greater chance of them getting broken increases as well. Additionally, the cost for the storage space to hold these doors that you might not even sell can add up to your expenses. In the JIT method, your only order door from your supplier when a buyer is confirmed, and deliver them straight to the customer on the exact date they provided.
However, for the JOT method to be successful, efficiency is a very crucial factor that your company must provide. Even though a made-to-order system is established, the time of delivery should never be compromised. A customer who orders the doors doesn’t want to wait for weeks or months to receive their order. They can quickly go to a competitor company that can deliver the same product much more quickly.
What Is The Difference Between Just In Time Method and Just In Case Method?
The JIT method, also known as Just in Time Manufacturing, Lean Manufacturing, and the Toyota Production System (TPS), is a complete opposite from the Just in Case inventory strategy, which involves ordering large amounts of inventory upfront, with or without a potential customer.
The JIT method, also known as Just in Time Manufacturing, Lean Manufacturing, and the Toyota Production System (TPS), is the complete opposite of the Just in Case inventory strategy, which involves ordering huge inventory upfront. The downside with the Just in Case inventory method is that you end up with a considerable quantity of deadstock— inventory that does not sell- which also means money down the drain. In the case of JIT, deadstock doesn’t exist. You are only placing orders when you have a buyer.
How Does Just In Time Inventory Work?
Since the JIT inventory method means no backup stocks and orders are placed only when a buyer confirms a purchase, it can be risky business. Several business operations and supply chain functions need good coordination for this technique to succeed. With no in-between of goods and inventory stocks to hold on to, a simple mistake and poor inventory management in construction can be very devastating for a construction company.
To avoid this, we have prepared five questions to make sure that you are prepared to incorporate the Just In Time inventory method into your company:
1. Are your suppliers dependable?
Dependable suppliers are crucial when it comes to having a profitable Just in Time inventory management technique. Your trusted suppliers must be able to deliver the raw materials, tools, and all other types of your inventory need quickly. The turnaround time must be quick, so it helps to work with reliable suppliers near your headquarters or project sites.
If your suppliers use any machinery to manufacture what you ordered, you need to ensure that these suppliers are resilient and consistent if ever machinery issues take place. Even a breakdown for a day can result in catastrophic budget losses to your company, so having a trustworthy supplier is crucial to your success.
2. Can you forecast customer demands accurately?
In order to have an edge in the JIT method, you must understand the buying habits of your target market or even your repeating customers. Are there specific seasons when the demand for your products is higher than the other seasons? When are your peak and low periods of the year? In the JIT method, you must anticipate a significant increase and even a low dip in sales. You also need to ensure that your company operations can handle a varying amount of orders during these changing seasons or periods.
Moreover, it would also help your company if you have suppliers who would be willing enough to hold extra inventory for you if unexpected problems may arise. You may also think of this as a buffer to give you wiggle room in case there would be forecasting mistakes on demand management in your company.
3. Can you say that you have a steady production?
When you place an inventory order to your suppliers, they need to be able to deliver the item/s to you or the customer immediately. If your supplier takes weeks to process an inventory order, you guaranteed a customer in five business days, and you will most likely lose that customer’s loyalty and your company’s good image.
4. Is your workmanship high quality?
Similar to your suppliers, your employees need to be reliable and quick. Everything from processing inventory orders to ordering and tracking inventory needs to be done each time accurately. That requires proper job training and good construction crew management in place.
5. Is your inventory management system flexible?
Your company needs to have a construction inventory management system in place that can have inventory information, such as quantity and location, be updated within seconds at any time throughout any day. To have real-time inventory management, you’ll need cloud-based inventory software that you know and trust to help with your inventory control.
What Are the Pros and Cons of Just In Time Inventory?
Like any methods in project management for construction, the JIT inventory system has its fair share of advantages and disadvantages. Knowing the realities of using this inventory technique in advance could help safeguard your company from devastating losses in revenue in the future.
The advantages of using Just in Time as an inventory management method consists of:
- Cheaper inventory holding cost: You’ll have fewer inventory in your storage which means you’ll spend less on storage costs.
- Less to no deadstock: Since inventory is being ordered based on customer confirmed purchases, and your company is less likely to have idle items that are sitting in a warehouse unsold.
- High inventory turnover ratios: With JIT, you are more likely to have a high inventory turnover ratio, reflecting that your operations are highly efficient.
- Increase in cash flow: You spend less on inventory holding costs since you have less inventory, both of which free up your expenses. Also, using the JIT method can curtail the amount of capital required if you are just a start-up company. Money that is usually spent on deadstock inventory is now available to spend in other ways.
The disadvantages include:
- Increased pricing for inventory: If prices for your inventory items spike, you’ll have no choice but to pay more.
- Risk of stockouts: You risk not accessing inventory immediately when customers place an order. This can, unfortunately, result in losing potential sales and your customer base. Stockouts can be caused by both man-made and natural disasters that stop production, such as wildfires, hurricanes, strikes, and embargos.
Implementing a Just in Time Inventory System to Your
Using a Just-In-Time method in managing construction inventory starts with using the best inventory management software is available. With Pro Crew Schedule, you can quickly and easily incorporate JIT inventory system techniques into your company. Update inventory quantities in real-time, accurately track inventory locations and get customized alerts and notifications to help you know exactly when you need to order more inventory.
Sign up now and get a 30 days free trial of the all-in-one construction scheduling software.