Just in time – business term – JIT

In some forex articles we use term : JIT. It is business strategy and this article will provide all informations you need to know.
Sometimes in forex fundamental analysis we use this term.

Just in time is a strategy specifically used in the production sector of the businesses. It focuses on the enhancement of return on investment to improve the overall business. It does so by minimizing the carrying-costs and in-process inventory. This was first successfully implemented in the production system of Toyota. To achieve the objectives of JIT, it requires multiple processes to be combined for the next process. The main focus of JIT is on the continuous improvement, and that can help the return on investment of manufacturing firms. To reach the goal of continuous improvement, an organization needs to focus on the flow, quality, and employee involvement.

Philosophy
The basic philosophy of just in time concept is straight forward: Inventory is just a waste. According to this theory keeping an inventory only exposes the hidden cost, and hence it is not a simple solution for the manufacturing firms. The firm must follow the line of methods to be able to handle the results of the changes. This concept came from different fields of work like production management, industrial engineering, statistics, and behavioral sciences. The philosophy of JIT defines that how a management should view the inventory.
In the theory of JIT, the inventory is recognized as a waste and not something that adds value to the storing. This theory focuses on the management to eliminate the inventory that is not directly used in the manufacturing process.
In simple words, the JIT theory is simply “right material for the right time,” plus a right place and in the exact required amount.

Transaction cost approach
The focus of JIT is to reduce the total inventory in the company. However, a company can choose to outsource its internal inventory to the suppliers who doesn’t believe in the JIT approach.

Price volatility
JIT unreservedly presumes a level of contribution price constancy that precludes require to purchase parts in proceed of price increases. Where contribution prices are likely to rise, stocking up inventory may be enviable.

Quality volatility
According to JIT, the parts of input quality remain at the same level. If not, then companies might come across high-quality inputs. To improve the volatility in the price, the recommended solution is to work with only preferred suppliers, and it will be then help is reducing the variation in the cost. Long-term contracts must be applied on the basis on quality and consistency from the supplier.

Effects
Initially, the response time of the factory was strange as it feel for a day. As a result, the customer satisfaction was improved as they received the vehicles with the minimum timeframe. Furthermore, the output of the factory increased with having high hopes of more sales. This resulted in the increase of return on equity for the company.
The JIT was also tested on some other segments in the supply chain of various industries. In eth commercial sector, JIT focused on removing all or at least one warehouse that is linked with the retail establishment and the factory.

Benefits of JIT

• Setup time is being reduced.
• From the shelves to the warehouse, the flow of goods improves.
• Those employees who have multiple skills are utilized in a much better way.
• Relationship with suppliers is improved.
• The response time of the suppliers is improved.