For a business to thrive in its respective industry, it needs high-quality organization. Hence, inventory management is a crucial component of supply chain management. Maintaining the inventory is crucial for any business that is involved in buying or selling products and the number one rule in supply chain management is continuity of supply.

At Mechanical Power, we have implemented efficient inventory process. Our business can supervise its flow of goods from manufacturing to our Wauconda, IL based warehouse. Keeping a complete record of the entirely new product is essential as well as employing processes such as FIFO (First In First Out).

This process can be incredibly complicated, especially for larger organizations. Nevertheless, the basics of this process remain the same regardless of the business size. Our purchasing department orders the goods, which then arrive at a warehouse. These raw materials stay in the stock areas until we move them into the production facility.

The production facility is where the unfinished products become viable for the markets. Once they are finished, our team returns them to the stock area, where trucks will load them to the retail stores, through the sales department.

Just-In-Time Inventory Management

Just-in-time, or (JIT) involves a set of techniques that increase productivity, improves quality, and reduces the cost of operation to a significant amount. This model of inventory management has one main aim, which is to ensure that the inventory enters production at exactly the right time. In other words, they should arrive at exactly the time and amount that the production team can handle.

Origins and History

Ever since the industrial revolution, many businesses have pondered upon multiple inventory management techniques to increase production and efficiently meet demands. Just-in-time inventory management is one method that Toyota’s founder, Taiichi Ohno, introduced after the Second World War.

This production system turned out to be the smartest way of inventory management, and a system that revolutionized the industrial sector. The philosophies and practices of this system are applicable in many other areas of business.

After World War 2, Japan was left to deal with difficult economic problems. They were low on funds and their resources were scarce. On top of that, there wasn’t much free land where they could expand factories.

However, Taiichi Ohno gradually created the Just-in-time inventory management solution and changed the course of time. The idea was not implemented all at once, instead, it was a result of the various changes through the 60s and 70s.

The Philosophy behind Just-In-time

The philosophy revolves around making the entire production system only work with the products and market requirements, nothing more, or nothing less. This helps minimize the waiting time between each stage of the inventory and manufacturing process.

The inventory stage benefits the most out of this system. Before this inventory management system took a stride, a company’s warehouse would be full of different parts and raw materials needed for production. This meant that the raw material was lying around in the warehouse waiting for the next order to arrive so that the company can put it into use.

Companies would therefore have to pay a hefty amount of warehousing cost. This cost can fluctuate and increase depending on the size and number of spare inventories. Business owners were not doing well because they had to pay for the massive space, staff, security, and electricity so that parts could remain safe.

Demand forecasting is tough for many businesses and few excel in this arena. One common accelerant to efficient demand forecasting is the use of SIOP, better known as Sales, Inventory & Operations Planning.

In this instance, Toyota realized that you could save in this cost if you keep preparing the same order, as soon as the next one arrives. By doing so, the company never has to keep a stock of goods or spare parts. The parts would just be in time for complete utilization, and there would be no need for warehousing.

This became the core of Just-in-time inventory management. Ultimately, the aim is to look at every single sector of the production value, and question whether that specific area is adding value to the product.

If it isn’t, then maybe you need to resort to better ways of process. This will involve a company to cut all the procedures down to their most efficient form and leave no chances for error. This is where the Just-in-time, or (JIT) thought process can also be risky.

One common system for implementing Just-in-time inventory replenishment is called Kanban replenishment. Kanban replenishment is a means of supporting pull-based fulfillment in manufacturing system. The Kanban system often applies to items that have fairly constant demand and are medium to high production volume.

Visual management is used to facilitate Kanban where inventory is kept in bins and operators turn in replenishment cards to the Procurement department to trigger releases to fill empty bins.

Possible Risks

Toyota played to the advantage of Japan’s relatively small size. Since suppliers had to travel shorter distances, you could rely on them to deliver the raw material exactly on time. When working based on JIT, timing is the most crucial element because any delays or complications with supply can ultimately result in shutting down the whole operation.

Thus, this dependency and reliance on the supply to consistently deliver adequate and timely supply are where the risk lies. However, to most company’s the risk is worth taking because of the instrumental savings on inventory and staff costs alone.

Demand forecasting is tough for many businesses and few excel in this arena. One common accelerant to efficient demand forecasting is the use of SIOP, better known as Sales, Inventory & Operations Planning.

This is a cross-functional approach to quantifying future demand and building an operations plan to support it through cohesive communications between Outside and Inside Sales, Procurement, Materials Management and Production Management within the operation.

A combination of historical demand analytics and future forecasting through the acquisition of voice of customer (VOC) is used to effectively develop a sales strategy and operations strategy to back it

Daniel Szwed
Digital Marketing Manager
Mechanical Power, Inc.