Just in time is an inventory management strategy which is used by the manufacturing companies so that these companies can reduce their cost of production. Under this strategy company does not hold inventories rather they produce as the demand for product arises. Just in time strategy has both advantages and disadvantages let’s look at both of them –
Advantages of Just in Time
- Just in time makes possible for the companies to use the cash for other productive purpose which would have been otherwise tied in the inventory.
- Since company buys the raw materials when there is need for it, company can have the advantage of buying the raw materials at lower price if the prices have reduced and also there is no risk of wastage of raw materials leading to cost saving for the company.
- Under this strategy company has more space as there is no inventory and therefore there is no requirement for storage and that vacant space can be used by the company for other productive purpose.
Disadvantages of Just in Time
- This strategy may lead to embarrassment for the company since if the company is not able to produce the product on time, it can have far reaching consequences on the goodwill of the company.
- Company is more dependent on the supplier of raw materials under this strategy and therefore chances of supplier exploiting the company increases when there is urgent need for raw material.