What Is Just-In-Time Logistics? How To Benefit From It

June 21, 2024

by Jaidyn Farar

When the COVID-19 pandemic hit, many businesses weren’t prepared for the surging demand, port closures, and other supply chain disruptions—and as a result, they ran out of essential parts and products. But as the pandemic ended, these merchants suddenly faced a new problem: they’d stocked up to meet demand, but demand began to drop. Now, they were left with excess inventory tying up cash flow, bumping up storage costs, and becoming obsolete. By 2023, many major retailers still had below-average inventory turnover.

Both of these issues—stockouts and overstocks—help illustrate the benefits and potential downsides of just-in-time (JIT) logistics. While JIT can potentially lead to product shortages (as was the case in 2020), it can also help businesses avoid accumulating excess inventory.

Why is JIT a double-edged sword in the supply chain world? And should your business implement a JIT strategy? Let’s explore what JIT is, how it works, and tips for getting started.

What is just-in-time logistics (JIT)?

Just-in-time (JIT) logistics is an inventory management strategy where businesses order and receive materials only as needed to meet customer demand, rather than storing inventory in anticipation of future demand.

The goal of JIT logistics is to minimize inventory costs, decrease waste, and improve production efficiency. For JIT to work well, businesses must forecast demand accurately and work with reliable suppliers. A good JIT logistics strategy ensures that materials arrive at exactly the right time in exactly the right quantities.

We’ll dive deeper into the advantages of JIT below, but here are a few benefits at a glance:

Lower inventory holding costs
Higher inventory turnover
Less waste
Increased productivity
Greater sustainability

Just-in-time inventory was first introduced in Japan in the 1950s, primarily developed by Taiichi Ohno at Toyota. He designed the system to improve efficiency by reducing waste and ensuring that parts and materials arrived only as needed for the production process. JIT gained global recognition in the 1970s and 80s as companies worldwide adopted its principles to enhance productivity and reduce costs.

How does just-in-time logistics work?

Just-in-time logistics works by minimizing the inventory a business keeps on hand, thereby improving efficiency and decreasing the amount of wasted materials or products. When you order exactly the inventory you need, you don’t end up storing leftovers (and paying for extra warehouse space).

JIT is considered a pull strategy because production is driven by actual customer demand; inventory is only replenished as it is consumed. In contrast, push strategies involve producing goods based on predetermined schedules, which can result in excess inventory.

The JIT system works like this:

The customer places an order.
The business orders the product or raw materials from the supplier.
The supplier delivers the product or raw materials to the business.
The business sends the final product to the customer.

JIT can work well for both small and large businesses. It’s especially well-suited to industries like automotive, apparel, retail, technology, and restaurants. Consider implementing JIT if your organization has a relatively simple supply chain, reliable suppliers, and steady or predictable customer demand.

Benefits of implementing just-in-time logistics

When done well, JIT logistics helps you reduce costs and waste, boost productivity, and keep your supply chain responsive. We’ll explore these benefits (and more) in more detail.

Reduced costs. When you receive goods only as needed for production, you don’t need to spend money on excess materials. Additionally, not having extra inventory reduces warehousing costs.
Greater cash flow. Excess inventory doesn’t just rack up storage costs—it also ties up cash that you could be using to invest in other areas. By lowering the amount of money tied up in inventory, you make more funds available for other operational needs.
More responsive supply chain. JIT logistics enhances the agility of the supply chain, enabling companies to quickly adapt to changes in consumer demand. For example, if you need to discontinue a product or start selling a new one, you can make that change without losing money.
Reduced waste. With precise inventory management, JIT logistics helps minimize overproduction and excess inventory (dead stock), thereby reducing waste and promoting sustainability.
Higher product quality. With frequent, smaller deliveries, it’s easier to monitor product quality and identify defective products before products are shipped to customers.
Increased productivity. Streamlined inventory and production processes in JIT logistics eliminate unnecessary steps and delays, thereby boosting overall productivity and efficiency.
Greater sustainability. Companies that use JIT often order materials locally to reduce transportation times and costs. In addition to fostering closer supplier relationships, local sourcing supports the local economy and reduces carbon emissions.
Optimized resource allocation. By aligning inventory levels closely with production schedules, JIT logistics ensures that resources are allocated efficiently.

Just-in-time logistics challenges

On the flip side, just-in-time logistics comes with challenges, especially in today’s world of geopolitical conflicts, labor shortages, and frequent weather events. The following areas can present issues:

Demand forecasting. JIT logistics relies heavily on precise demand forecasts to ensure that inventory levels match production needs. Because of this, forecasting errors can be disruptive and costly. For example, if you get a large, unexpected order, it may take longer than usual to fulfill it.
Disruptions. Since JIT systems maintain minimal inventory, any disruption in the supply chain can lead to significant production halts and missed deadlines.
Higher costs than wholesale. JIT often involves frequent, smaller deliveries rather than bulk purchases. These smaller orders often have higher per-unit costs and less leverage in price negotiations.
High amount of control required. Implementing JIT requires meticulous coordination and control over the supply chain. You must have robust systems and processes to manage the precise timing of inventory arrivals.
Large delivery networks. To work well, JIT requires extensive delivery networks to ensure timely supply, particularly if sourcing from diverse locations.
Unreliable suppliers. Suppliers can make or break your JIT strategy. If suppliers fail to deliver on time, you’ll be left with costly downtime and delayed customer deliveries. The result? Damaged customer relationships and company reputation.

With proper planning and management, these challenges won’t stand in the way of a successful just-in-time strategy. However, even businesses with strong JIT models can face challenges when the unexpected happens. For example, in 1997, Toyota supplier Aisen Seiki experienced a fire at one of their plants. The problem? Aisen Seiki was Toyota’s only source of proportional valves, or P-valves—a crucial component of their vehicles.

With only a few days worth of P-valves on hand, Toyota factories soon had to shut down production lines, leading to a huge loss in sales and profits. Fortunately, other suppliers were able to quickly step in to produce the part, and the issue was resolved.

Tips for getting started with JIT logistics

When getting started with JIT logistics, you need to start with a strong foundation. This includes selecting reliable suppliers and building great relationships, implementing an accurate demand forecasting method, visualizing your workflows, and investing in technology.

Develop strong supplier relationships

The success of your JIT strategy depends on your suppliers.

If suppliers are reliable, delivering high-quality goods or materials on time, you’ll easily be able to meet production deadlines. On the other hand, if suppliers fail to deliver inventory when needed, it can trigger a chain reaction that results in stockouts and frustrated customers.

In addition to carefully vetting partners, keep supplier relationships strong by communicating and collaborating frequently. If an issue arises with a supplier, set up a meeting to discuss things and get to the root of the problem. Consider severing partnerships if suppliers don’t meet service-level agreements (SLAs) despite frequent communication.

Ensure accurate demand forecasting

Just-in-time inventory strategies work best in industries with steady, predictable demand. But even if you’re used to constant demand, you should still use forecasting tools to predict customer needs more precisely.

Use historical data, market analysis, and predictive analytics to ensure that inventory levels align closely with actual demand, minimizing the risk of overstocking and stockouts.

Use a Kanban workflow

Kanban is a visual workflow management system often used with lean manufacturing and JIT. Using a Kanban workflow improves visibility and efficiency and allows for easier team collaboration.

Leverage technology and automation

Use advanced inventory management systems and automation tools to monitor stock levels in real time and forecast demand accurately. These technologies help in maintaining optimal inventory levels and improving response times.

Demand forecasting tools. Demand forecasting tools use historical data, market trends, and advanced algorithms to predict future demand with high accuracy. This allows you to plan inventory levels, ensuring that materials and products are available just in time for production and order fulfillment.
Inventory management software. Inventory management software automates reorder processes based on real-time demand and inventory usage. This ensures that inventory is replenished exactly when needed, minimizing holding costs and reducing waste.
Warehouse automation technology. Warehouse automation technology, such as automated guided vehicles (AGVs) and automated storage and retrieval systems (AS/RS), speeds up material handling, reduces human error, and helps you monitor inventory levels more closely.

Make backup plans

Following these tips will set you up for success with JIT. You’ll have strong relationships with suppliers, a method to accurately predict future demand, and tools to monitor your inventory. But what happens when something throws a wrench in your plans? (Think: natural disasters, labor shortages, and geopolitical conflicts).

You should prepare for potential supply chain disruptions by creating contingency plans. This might include having backup suppliers and developing disaster recovery strategies to address unexpected issues without a significant impact on production.

Strengthen your supply chain with EasyPost

Whether you use just-in-time logistics or another inventory management technique, inventory management plays a critical role in your supply chain. However, it’s not the only piece of the puzzle. For an effective supply chain, you also need to have a solid shipping strategy.

When it comes to shipping, your business needs a way to quickly choose the fastest shipping method, generate accurate labels, and manage tracking data. You can do this with shipping software like EasyPost.

EasyPost’s world-class Shipping API streamlines the shipping process, helping you process and fulfill orders more quickly and save money on shipping.