1 Answer | Add Yours
Just-in-time processing differs from conventional strategies in that it tries to ensure that a company has as little inventory as possible. The reason for this is that keeping inventory around incurs costs, generally called carrying costs. Therefore, a company that is able to manage its inventory on a just-in-time basis can save money.
In conventional strategies, companies keep excess inventory around on what is sometimes called a "just-in-case" basis. They want to be sure that they are never caught not having an item in inventory because that would mean that they might lose a customer.
Just-in-time inventory management is meant to keep customers satisfied, but without having the costs of keeping inventory around. This means that a firm must keep very careful track of how much inventory it has and how much it is likely to need. It then orders the exact amount of inventory it will need and it times its orders to be sure that it will only receive the inventory right when it needs it.
Just-in-time is a much riskier strategy. It forces a firm to be very accurate in its forecasting of what it will need and when. When it works, though, it is a very good way for a company to save money.
We’ve answered 315,697 questions. We can answer yours, too.Ask a question