A just-in-time (JIT) inventory system is based on the idea that keeping a large on-hand inventory of any kind is a form of waste. The model became popular among many notable Japanese manufacturing firms during the late 1980s and was adopted more gradually by American and European companies in the years following. JIT inventory management is an integral part of the lean model, which deals with eliminating wasted resources, energy, time and money in the manufacturing process.
The ideal goal of JIT manufacturing is to have precisely the right amount of components or materials on hand at any given moment, with as little idle inventory as possible. In a factory run perfectly according to the JIT model, every component delivered to the factory would go directly from the loading dock to the assembly line. Traditional inventory systems, on the other hand, seek to have enough inventory on hand so that production may continue even in the face of unexpected shortages or shipping delays.
In most cases, the shipments received at a traditional factory will be delivered to the warehouse until needed. This requires significant warehousing space. The JIT model would see this warehoused inventory as wasted space that could be put to more productive use. The traditional inventory system also requires workers to handle almost all shipments at least twice: at the loading dock and at the assembly line. The worker-hours spent moving inventory would be considered wasted resources under JIT.
Traditional inventory systems do have some advantages due to their ability to warehouse large on-hand inventories. JIT manufacturing is extremely sensitive to supply shortages, since one missed shipment of a particular component may be enough to shut down an assembly line until the next shipment arrives. A traditional factory would continue to work under these circumstances, using components from the warehouse until the next shipment. Traditional inventory systems enable companies to buy large amounts of inventory when prices are low and use the inventory when prices are high, while companies using JIT must pay the market price or shut down the line.
The biggest advantage that traditional inventory systems have over JIT systems is the reliance on JIT on a highly optimized lean manufacturing supply chain. If a company attempts to implement a JIT system without ensuring that the other lean manufacturing components are in place, then the company will suffer serious negative effects on its productivity. JIT reduces costs and increases productivity, but it requires a loss of flexibility and security that many smaller companies can't afford to do without.