JIT and Min/Max Inventory - Essay Example

JIT has been defined in a number of ways. One of the most comprehensive definitions is quoted as follows: “JIT is a set of principles, tools and techniques that allows a company to produce and deliver products in small quantities, with short lead times, to meet specific customer needs.”The basic idea behind JIT is to reduce inventory holding cost by accumulating no inventory month over month. JIT helps in removing wastes from a time perspective, investment perspective and workforce perspective.

JIT follows a Pull method of manufacturing and acts as a tool to make organizational operations as lean as possible.JIT has proved to be very effective in retail environment. JIT works the best for those retailers who have a significant control over the upwards supply chain. JIT in retail has been made possible due to the emergence of huge retail chains over the last two or three decades. These chains include big companies such as Wal-mart and Tesco. By implementing JIT, it becomes easier for these retailers to manage their inventories and distribution networks.

Through JIT, the retailers take frequent orders from the suppliers in smaller quantities. This helps in the optimum utilization of shelf space by these retailers.JIT poses problems of transportation utilization as full truckloads are not possible with small orders. In order to tackle this, consolidation happens in the upward supply chain. This has been made possible by the emergence of third party logistics providers (Fernie & Sparks). Also, the suppliers need to reduce their lead times to be able to provide products to retailers in time.

However, these issues have been tackled by supply chain integration between retailers and suppliers through ERP and SCM systems. These systems have enabled a smooth implementation of JIT in large firms. JIT in retail is even more helpful when the suppliers or their warehouses are close to the retail stores. Some retailers even replenish their inventories twice a day due to such facilities.Min/Max inventory system is in a direct contrast with the JIT approach. This system uses minimum and maximum inventory levels to buy stocks.

Therefore, purchasing is done near the minimum inventory level and avoided near the maximum inventory level. This always keeps the inventory within controllable limits and avoids risks of stock-outs. This kind of inventory system works best whenever there is cyclical demand for a product and the sales can be predicted over a medium term but not over a short term (entsgo.com). Min/max inventory system also works well the demand for a product is uncertain. This system helps in achieving opportunistic sales (Simplifying Min/Max & JIT Inventory, 2010).

Min/Max inventory systems can be used with JIT in retail stores depending upon the types of products available. An ideal approach is to use an inventory system suited for the product. Thus, for commodities such as FMCG products, food products and utilities a JIT system should be used within the retail store. On the other hand, for electronics products or clothes, a min/max inventory system would work well. Using the two parallel systems in conjunction would serve best for the retail store. However, using a combined system could pose several hazards for the retail store.

Firstly, such system would be equivalent to using two separate supply chains. This would obviously increase costs. Such a system would make sense for retail stores where scales justify these costs. Secondly, it requires a greater degree of management control and administration. There is a space for conflicts, issues and challenges in such a system. The employees working within the retail store may be confused and make errors. In a nut shell, min/max JIT system makes more sense for large retail organizations while for others it is judicious to chose and pick what suits best for the products they sell.

ReferencesFernie,John., Sparks,Leigh. Retail Logistics: Changes and Challenges. Logistics and Retail ManagementHow should we manage our inventory: JIT versus Min/Max Approaches to Inventory Management. Retrieved online April 13, 2012 from Simplifying Min/Max & JIT Inventory: Do You Know What Your Company Should Run. (2010). Retrieved online April 13, 2012 from