CONCEPT

• Just in Time (JIT) inventory replenishment system was pioneered by Toyota in Japan.

• In JIT system, the company follows pull system, where ideally manufacturing and/or purchasing starts once the customer orders are received, to ensure zero inventories, i.e. material is purchased and produced only as much and when needed.

Requirements

• The implementation of JIT system requires infrastructure such as an efficient transport system, an electronic information network and a pool of reliable suppliers.

• An information sharing and a reliable electronic information network between the manufacturer and its suppliers is a must.

• Long term strategic symbiotic relationships with selective suppliers who can offer quality, lower costs, and punctual delivery are the key.

JIT Advantages:

• Advantages to Vendor/Supplier/Manufacturer:– Less amount of inventory storage reduces the need of storage space, thus administration and

storage costs come down.– Demand synchronized production leads to both less dead inventory and less stock-outs.

• Advantages to Buyer/Customer/Retailer:

– Frequent stock turnarounds leads to better flow of goods from the warehouse to the shelves.– With inventory management issues out of mind, higher emphasis is on building supplier

relationships.– The setup time is reduced considerably.

JIT Challenges:

Lack of reliable supplier networks Lack of knowledge of immediate financial gains Lack of capital Lack of bargaining power with suppliers due to small firm size Lack of capacity to manage demand fluctuations without inventory The fear of the risks involved In anticipation of situations, where something might go wrong, as zero

inventories could potentially stop production, companies are reserved towards the idea of implementing JIT in their firms.

JIT Implementation in Zara

• Zara’s Competitive Advantage: fast fashion, i.e. fashion aligned to the trends, with collections changing precisely twice a week in all its stores around the world.

• A significant section of Zara’s manufacturing is in-house, with allows them flexibility, frequency and variety advantages.

• This helps Zara to commit only 50% of its capacity in the starting of the season and leave the remaining 50% for mid-season manufacturing.

• Flexible extra shifts and temporary labour help Zara create extra capacity when needed.

• This translates into more customer footfall in their stores by creating an environment of time shortage and the opportunity to own the latest trends.

• Thus effective JIT implementation allows Zara to make frequent changes in their designs, follow latest trends, and sell 85% of its line at full price, unlike its industry counterparts which average around 60-70% on sales at full pricing.

• Due to JIT, Zara’s unsold inventory accounts of only 10% of its stock, whereas the industry average is around 17-20% of the unsold stock.

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References• Musara Mazanai (February 2012). Impact of just-in-time (JIT) inventory system on efficiency,

quality and flexibility among manufacturing sector, small and medium enterprise (SMEs) in South Africa. African Journal of Business Management Vol. 6(17), pp. 5786-5781.doi: 10.5897/AJBM12.148

• Talha M (2002). Implication of Just-in-Time (JIT) on accounting. Delhi. Bus. Rev., 3(2).

• Kaneko J, Nojiri W (2008). The logistics of Just in Time between parts suppliers and car ‐ ‐assemblers in Japan. J. Transp. Geogr., Volume1, Pages: 155 173.‐

• Akbar Javadian Kootanaee, Dr. K. Nagendra Babu, Hamidreza Fooladi Talari (March 2003). Just-in-Time Manufacturing System: From Introduction to Implement. International Journal of Economics, Business and Finance, Vol. 1, No. 2, PP: 07 – 25, ISSN: 2327-8188.