What is Just in Time (JIT)?
Just in Time (JIT) is a way of managing inventory and production that saves money and reduces waste. It means that a company only orders or makes the materials and products that it needs at the moment, instead of keeping a lot of extra stock.
This way, the company can avoid paying for storage, handling, and insurance of unused inventory. It also reduces the risk of losing money if the demand for the products changes or the inventory gets damaged or outdated.
Example of Just in Time (JIT):
For example, imagine you own a bakery that sells bread, cakes, and pastries. If you use the JIT method, you would only order the flour, eggs, butter, and other ingredients that you need for the day, based on the orders that you have from your customers.
You would also only bake the exact amount of bread, cakes, and pastries that you need to fulfill those orders. This way, you would not have any leftover ingredients or products that you have to store or throw away. You would also save money on electricity, gas, and water by using your oven and other equipment only when necessary.
Why is Just in Time (JIT) Important?
The JIT method is important in accounting because it helps a company improve its cash flow, profitability, and efficiency. Cash flow is the amount of money that a company has available to spend or invest. By using the JIT method, a company can reduce its inventory costs and free up more cash for other purposes. Profitability is the ability of a company to make more money than it spends.
By using the JIT method, a company can increase its profit margin by lowering its expenses and increasing its sales. Efficiency is the ability of a company to use its resources wisely and avoid waste.
By using the JIT method, a company can optimize its production process and deliver high-quality products to its customers on time.
How is Just in Time (JIT) Handled?
The JIT method is handled by carefully planning and coordinating the supply chain, which is the network of suppliers, manufacturers, distributors, and retailers that are involved in producing and delivering a product.
A company that uses the JIT method has to communicate closely with its suppliers and customers to ensure that it orders and receives the right amount of materials and products at the right time. It also has to monitor and control its inventory levels, production schedules, and quality standards.
It may use a system called kanban, which is a visual tool that tracks the flow of work and signals when more materials or products are needed.
Key Points about the Just in Time (JIT) method:
Here are some Key points about the JIT method:
- JIT stands for Just in Time, a way of managing inventory and production that saves money and reduces waste.
- JIT means that a company only orders or makes the materials and products that it needs at the moment, instead of keeping a lot of extra stock.
- JIT helps a company improve its cash flow, profitability, and efficiency by lowering its inventory costs, increasing its profit margin, and optimizing its production process.
- JIT is handled by carefully planning and coordinating the supply chain, and may use a system called kanban to track and signal the work flow.
