While manufacturers are often thought to be the industry that profit most from just-in-time inventory control, small businesses can also reap the benefits of using a just-in-time approach. It allows manufacturers, and small businesses alike, to moderate inventory costs and maximise the value of the inventory they have on the floor. As this can improve efficiency, it can also help small business owners ‘take back their time‘.
With just-in-time, a manufacturer contracts with a supplier to receive inventory as it is needed – rather than keeping a large inventory on hand at all times. The key benefits of this are that it can help lower production costs and increase efficiency of the manufacturing process. This basic concept can also be applied to anyone who needs to stock inventory or otherwise has a supply chain – not just manufacturers.
Nonetheless, because this model is primarily a manufacturing model, we’ll use the manufacturing process as an example. Finding success with a just-in-time approach depends upon three important components:
A disciplined manufacturing process
It’s important to ensure you have complete control of all your production processes in order to successfully implement just-in-time inventory control. The entire assembly line needs to be in sync and you can’t afford errors in production. Tight inventory control is crucial because if the part isn’t there, the assembly line stops. The resulting downtime is expensive both in terms of production and manpower.
This means repeatable processes must be in place. This way, you can ensure that your employees keep track of what’s being used and what’s needed, so that there’s enough inventory to meet your manufacturing goals.
A good supplier relationship
We’ve mentioned in previous blog posts how beneficial a positive relationship with suppliers can be for your small business. However, creating an excellent relationship with your supplier requires some forethought. As such, there are some things you should consider when negotiating with suppliers. For example, instead of thinking of how to achieve the lowest price on purchasing inventory today, you’ll need to think longer-term. Creating contracts with suppliers to guarantee delivery over the long term (think yearly – or longer- contracts) can help a small manufacturer ensure they have readily available inventory when they need it, and at the lowest price possible. This is not only good for your business, but a potential win for your suppliers. It gives them the benefit of guaranteed business over this longer term.
The just-in-time approach could also help to reduce waste as you’ll only receive goods as you need them. It eliminates the potential for parts or raw materials on hand to become obsolete or unneeded.
The right technology
The just-in-time approach is more accessible now than it was upon its introduction 50 years ago. This is because technology makes it easier to monitor inventory levels in real time. Additionally, technology improves the ability to instantly communicate with suppliers.
Another piece of technology that has made just-in-time more accessible is barcoding. Barcoding parts to track inventory usage makes it easy for you and your suppliers to keep track of inventory levels. Your suppliers can see, in real time, whether you need more component parts or raw materials. As such, they can act quickly to get you what you need.
Utilising the right technology is also critical in keeping an open line of communication with your supplier. Your suppliers will likely need access to your production schedules. They could also need instant notifications of any changes that would change your production and inventory needs – such as an increased need for inventory in time for the holiday rush.
Taking a just-in-time approach could be a great way to increase the efficiency of your manufacturing process. To determine if it’s the right approach for you, you’ll need to ask yourself a few questions:
1. Do you produce a predictable amount of products every day, week or month? Can you predict how much inventory in parts or raw materials you’ll need during your production schedule? If you cannot, it could be difficult to adopt a just-in-time approach.
2. Are your suppliers willing to stock the inventory you need and make smaller, yet more frequent, deliveries? Are they willing to negotiate favourable terms for the guarantee of long-term commitments from you? Can you rely on them to give you quick access to the supplies you need, as you need them?
3. Are your employees willing to adopt new systems and technology that initially may add a step or two to what they are currently doing within your manufacturing process?
4. Are you willing to invest in the technology and tools to monitor your inventory and communicate with your suppliers so they have visibility into your production schedule and can seamlessly manage your inventory?
A just-in-time methodology is a popular way to help businesses manage costs and increase profits. Still, you need to evaluate whether or not it’s right for your small business. Moreover, you should determine if you’re willing to make the investments required to implement it. Fortunately, the technology you need is more accessible than ever before if you do choose that it’s right for your business.