Just in Time Inventory Systems for Ecommerce: Is JIT Inventory Worth It?
August 8, 2019
Inventory management for your ecommerce business can get a bit complicated. Orders come flying in, products need to be shipped out, and it can be challenging to keep track of what you have in and out of stock.
Customer satisfaction is hugely important to your business, so making sure orders are fulfilled on time needs to be a top priority. You need a solution that keeps all of your inventory in check and ensures you replenish in time.
Enter Just in Time (JIT) inventory, a practice that helps optimize inventory, so your business only has what is needed on hand.
While manufacturing companies like Toyota have spent a lot of time and money on perfecting this process, it is not always as easily replicated for ecommerce businesses.
Here’s a comprehensive guide on what JIT inventory is and how to get it right for your business.
What is Just in Time (JIT) inventory?
JIT is a method of ecommerce supply chain management that is designed to cut costs, increase efficiency, and decrease waste by receiving goods when they are needed. It effectively means having enough inventory available to meet customer demand but no more than just enough, so you need to stockpile the remainder pretty quickly thereafter.
While implementing JIT inventory for an ecommerce business can be difficult, the good news is ShipBob offers the next best solution – making sure warehousing costs and shipping costs are as low as possible.
History of Just in Time inventory
The Just in Time inventory method originated in Japan and is also known as the Toyota Production System, as the car manufacturer adopted the inventory management system in the 1970s.
Many believe JIT was originally formed in Japan’s shipyards as a result of Japan’s lack of money post-war, their lack of natural resources, and their lack of space for large factories and inventory.
JIT was then implemented in Western countries at the start of the 1980s.
Is Just in Time worth it?
Effectively implementing a JIT inventory management system can lead to many advantages that enable manufacturers to process inventory quickly and efficiently. However, there are also some downsides to JIT. Even the slightest disruption can lead to huge problems.
Pros of JIT inventory
JIT has several benefits to a company’s production process, including:
- Reduced storage costs: Due to the fact that inventory is produced or purchased at such short notice, there is no need to have extra or unsold inventory that takes up valuable inventory storage space. Warehouse space is expensive, which can also lead to high inventory carrying costs.
- Improved communication: JIT systems are only effective when communication is clear. To ensure problems don’t occur and the inventory system runs smoothly, teams need to communicate regularly.
- Less waste: Since JIT systems rely on customer demand and only manufacture what has been recently purchased, it eliminates the volume of waste and unnecessary stock.
- Smaller inventory investments: Companies spend a smaller amount of money on raw materials because they only buy the amount of resources they need to produce orders – nothing more and nothing less. Inventory is often the largest expense for businesses, and JIT reduces the need to order large bulk inventory batches that will lead to product sitting around for a while.
Cons of JIT inventory
While JIT can have many advantages, there are also some downsides, which include:
- Hard to implement: Companies that implement a JIT inventory system will quickly understand there is little room for error, and so there is a chance they’ll experience difficulties and setbacks before they get it right. Inventory control is difficult to manage, especially for fast-growing businesses.
- Greater risk of supply chain failure: A delay in receiving stock or a breakdown in machinery could be detrimental to a company’s supply chain and cause significant problems.
- More planning: In order to do JIT right, companies must have accurate demand forecasts as well as real-time inventory tracking and customer buying insights. A small miscalculation could have a large impact on operations.
- Stockouts are more likely: Since the JIT system calls to only have just enough stock, it’s possible for companies to run out if there is an unplanned surge in orders, making order fulfillment delayed.
JIT Inventory for ecommerce stores
JIT inventory systems are most commonly used in manufacturing, but there is the possibility of using the JIT method for ecommerce stores.
By applying JIT, you could reduce stock levels within your fulfillment center or stock room and only hold a specific amount of stock to fulfill orders in accordance with customer demand. This may also reduce the costs of raw materials, as you would only need to produce what is ordered.
Implementing this inventory management system would enable your ecommerce store to reduce the chance of obsolete inventory, potentially decrease production lead times, and reduce the level of investment in working capital.
Ecommerce stores will have to control their supply chain management as much as they can to reach any sort of efficiency with JIT. They need to remain on top of orders and stock in order to effectively control their production process in line with JIT systems.
A Greater need for data
Warehousing and inventory forecasting data is great if you use it correctly. Since JIT is completely reliant on your past supply and demand, you’ll need real-time data to measure your needs or future inventory.
Using an electronic data solution (EDI) would enable ecommerce stores to manage inventory, improve efficiency, and control margins. EDI also allows stores to collect and transmit data accurately to make better forecasting predictions. The solution will automatically order new stock to replenish inventory levels once they hit a certain threshold with the agility and speed needed to satisfy consumer and retail needs.
Make your ecommerce supply chain JIT efficient
In order to effectively manage raw materials and control stock levels, strong supplier relationships and accurate demand forecasting are needed. Below are some ways to make your ecommerce supply chain JIT efficient.
Solidify your logistics
Inbound and outbound logistics play a huge part in ecommerce stores and the ability to reach ecommerce JIT industry standards. The JIT methodology can be applied to any area of business, but transportation is a big one that can be continuously improved with shorter and more consistent transit times, better communication surrounding deliveries, and improved coordination.
Have more than one supplier
Having more than one supplier can ensure that you have enough inventory if something goes wrong. A common downside to JIT is that if a stock cannot be replenished quickly enough, it can lead to huge problems that affect the entire supply chain. To overcome this, ecommerce stores can use multiple suppliers to ensure they never incur such problems.
Outsource fulfillment to a 3PL
ShipBob empowers ecommerce stores by providing fulfillment centers that are near to their customers, tools that help to maintain control over inventory and orders, and proprietary warehouse management technology that powers its fulfillment network.
Outsourcing fulfillment to a 3PL like ShipBob can help you gain better control of your inventory management. See it in action: Read about how Brummell delivered on their Q4 sales and holiday inventory in the last-minute with help from ShipBob.
Just in Time inventory systems can help ecommerce stores reduce waste, space, and costs. However, your store will also need to be as agile as possible and have the capability of handling a shorter than average production cycle.
While JIT is commonly used in regards to inventory management, the same principles can be applied to other areas of the supply chain for optimizations. Learn more about how ShipBob can help your business manage inventory and deliver orders quicker.