The full form of JIT in technology is: JUST IN TIME
What does JIT mean in the finance sector?
Just in time is a method of inventory of management where the production of raw material is done in accordance to the schedule of production.
In simpler terms no huge inventory is stored beforehand and the raw materials are only procured when needed.
This management technique helps in reduction of wastage of raw materials and hence leads to reduction in cost.
JIT allows you to produce/manufacture top quality goods while cutting down on cost and saving up on storage space.
How is JIT beneficial for the finance sector?
Following are the benefits of just in time management strategy:
Beneficial for smaller industries
The smaller industries who can’t afford to take huge risks such as deterioration of raw material can take advantage of JIT strategy. It also helps in maintaining a constant cash flow.
Less storage space
Since the raw materials are ordered only when needed, huge storage spaces are not needed to store the raw material.
Equipment maintenance and increase in efficiency
Just in time forces the business to adhere to a strict maintenance routine reducing the chance of failure during production.
This also helps in keeping a check on raw material deterioration which when replaced timely allows the smooth flow of production.
Strong relationships among the stake holders
JIT helps the company to easily reinvent themselves and employ latest techniques to their production easily. This helps in keeping the employee satisfied as they face new challenges periodically.
Under JIT the communication with vendors is more open and is built on mutual trust. It’s easier to maintain a long term contract under JIT system.
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What is the history behind JIT in finance?
JIT’s footsteps can be traced to the automobile industry, it was first developed by Toyota Motor Corporation. The Toyota Executives came to notice that it was more cost-efficient to stock up parts, finished products when there was a pending order or are needed them in the production process straight away.
This means the producer doesn’t need to stock up their warehouses and these could be shipped to them just before the production is scheduled.
How does Just In Time works?
The JIT is nothing but an operation that can reduce the inventory load of a firm and increase capability. It helps cutting down the inventory cost as the processor companies receive the raw materials or parts when they are in need and not stocking up for nothing.
This in turn helps them pay less amount of storage cost. For example, a car company affiliated with JIT but with a limited storage space, it also is heavily relied upon the supply system to deliver the part it needs.
So, the company orders the parts to manufacture a product when an order for their product is received.
What are the key principles of a JIT system?
- JIT inventory system can reduce inventory costs and increase efficiency.
- This is also known as TPS or Toyota Production System because the company introduced the system in 1970s.
- The whole process depends on reliable supplies, steady production line, high-quality workmanship etc.
- The system is easy and understandable and easy to use.
- It controls quality by ensuring that every worker is supervising the output.
- It also practices procedure to spot production and associated problems.