World Events vs. JIT, Essay Example

Introduction

Just-in-time inventory systems (JIT) is a part of production whereby a company vastly reduces inventory from its production processes, and evaluate their past performance so that utilization of production input, and delivery of finished products are met without incurring considerable holding costs. JIT inventory systems help a firm to assess what they may require to meet the daily requirements of production and the smooth running of the firm. This kind of system was developed during the World War II by the Japanese in an effort to control cost during that difficult economic times (Waguespack & Cantor, 1996). Due to the current world event happening in the world today, for instance the Japan tsunami, the unrest in Egypt, Syria, and Libya, just-in-time inventory systems are a necessity. For firms to succeed in this affected area, they must be linked to the principles of JIT. In some instances, just-in-time might also be a very risky adventure for companies in countries affected by the unrest and the natural calamities.

World Events vs. JIT

The basic foundation for JIT inventory system is quite simple: a firm only produces when there need of its product or just-in-time for a firm or an individual to purchase it. This prevents the firm from mass production and trying to distribute and sell products after they are manufactured. With JIT, the needs of the products must first be met before the firm goes ahead to produce the product. JIT inventory system allows firms to decrease the level of production and eliminate the waste brought about by over-production. This technique has saved many firms that have been affected by the current world event happenings. JIT has saved many companies that have been affected by the current crises in the North Africa countries like Egypt and Libya by reducing the overhead costs that reduce re-investments, and encourage stabilizing business practices (Young, 2009).

Toyota Company is one of the pioneers of JIT, and this helped them to cut on storage cost, as their finished cars did not sit idle in warehouses awaiting customers. In addition, this storage costs savings relate not only to their finished goods, but also to the inputs the Toyota Company might have used in production. Incase Toyota company involved themselves in mass production and were affected by the tsunami they could have incurred a great loss of their products from their warehouses (Muller, 2003). This bring out the fact why just-in-time is the best principle because the Toyota company will only manufacture cars depending on the needs of customers, because by doing that will save the company from losses incurred due to natural calamities like earthquake, tsunami, floods etc.

JIT inventory systems also cut delivery overheads as end products are delivered to where they are in demand. Shipping the same amount of a product to diverse retail outlets, for example, might not make much logic if the demand for that good is notably greater at one location in relation to another. This approach has saved on delivery costs and, also facilitates decreases in aforementioned natural disasters, states instability, and holding costs by not over-stocking certain areas with products. The same principle is also applied to inputs in production; products are not delivered and held at production locations where they might lay idle and be destroyed natural calamities or the word event e.g. states instability as it is happening in Egypt, Syria, and Libya.

Another example of the utilization of JIT inventory principles has been within the operation of the oil industry. The drive to reduce inventory costs made the oil refiners to develop JIT techniques in their production process. Rather than bearing the cost of over production and storage of oil, the refiners have preferred to utilize JIT inventory principles and only generate what is needed to meet the day to day necessities of supply. Although this example has caused much concern within the oil industry because of the sharp decline in oil inventories, the long-term effects of utilizing these techniques has greatly saved the companies from losses attributed by the current crises in the oil-producing countries, for example Egypt, Syria, and Libya. In case the firm’s in those affected areas kept large inventories of oil in their depots and the unlikely calamity like the tsunami in Japan happen, all the storage they had kept will all be destroyed and this will mean a great loss to the companies. Producing to meet the day to day requirement will obviously limit such losses from occurring.

Numerous factors, however, make JIT inventory systems a risky plan. A key worry here is the extent to which firms rely upon suppliers under such an inventory system. For instance, if a firm were to order a highly proprietary product to one supplier (most common in JIT inventory), a JIT inventory system would place such a firm at an even higher danger of overcharge for the supplier. This is because the firm lack immediate inventory to buffer an interruption of supply due to the current crisis on the horn of Africa, and other natural calamities i.e. the tsunami in Japan. Such a disruption of supply might be so expensive that the firm may allow the supplier to add the cost of the interruption. The overcharge cost might completely exceed the needs of for the firm utilizing JIT inventory system in the first place.

JIT inventory can again be a setback because businesses have to rely on each other. The supplier relies on the manufacturer, the manufacturer relies on the supplier, and the customer relies on both. In the event of a crisis or natural calamity, i.e. the tsunami in Japan one company may not produce as needed and this can have an effect on the next company in the supply and demand chain. Because this is a supply and demand system, when the customer is buying few products this will have an effect on both the manufacturer and supplier.

Conclusion

The development if JIT inventory system completely changed the face of customer/supplier relationship. Many companies are recognizing the needs of transitioning their usual practice of mass production in order to decrease costs, reduce overhead i.e. that might be cause by the current event happening in the world. JIT inventory system has helped many companies to utilize capital that is brought about by lower inventory expenditures. The development of JIT is making many companies to move toward the reduction of inventory procedure rather than remaining steadfast in mass production. The use JIT inventory systems have created a stream-lined inventory processes worldwide.

References

Muller, M. (2003). Essentials of Inventory Management. New York: AMACOM Div American Mgmt Assn.

Young, T.S. (2009). Essentials of Operations Management. Thousand Oaks: SAGE Publications Inc.

Waguespack, K. & Cantor, B. (1996, July). Oil Inventories Should Be Based on Margins, Supply Reliability. Oil & Gas Journal, vol. 94(28), pp. 39-41.

“Just-in-Time (JIT) Manufacturing-Inventory Control System” (n.d). Web. Retrieved on 24.06.2011 from <http://www.accountingformanagement.com/just_in_time.htm>