Just-in-time inventory

Definition

Just-in-time (JIT) inventory is a strategy that aligns raw-material orders from suppliers directly with production schedules. It aims to increase efficiency and decrease waste by receiving goods only as they are needed in the production process.

5 Must Know Facts For Your Next Test

1. JIT inventory reduces holding costs and minimizes excess inventory.
2. Companies using JIT must have reliable suppliers due to the risk of stockouts.
3. It enhances cash flow by reducing the amount of capital tied up in inventory.
4. Effective implementation requires precise demand forecasting and strong supplier relationships.
5. Toyota is famously known for pioneering the JIT inventory system.

Review Questions

• What are two major benefits of implementing a just-in-time inventory system?
• Why is having reliable suppliers crucial for companies using JIT inventory?
• How does JIT inventory impact a company's working capital?

Related terms

Trade Credit: An agreement where a buyer can purchase goods on account, paying the supplier at a later date.

Working Capital: The difference between a company's current assets and current liabilities, indicating short-term financial health.

Supply Chain Management: The management of the flow of goods and services from raw material to final product delivery.