Just In Time

How to get its productivity gains without also making your organization more fragile

2020-09-06 by Luca Dellanna

#management

Traditionally, companies use warehouses to stock the components required to manufacture their products. This is problematic for two reasons.

  1. Warehouses are expensive. They occupy precious land, are expensive to build and maintain, locks capital into inventory, and require personnel.

  2. Warehouses hide problems. If the suppliers have a late delivery but the warehouse still has stock, no one will notice. Therefore, suppliers are allowed to operate sloppily.

To avoid these two problems, some companies adopted a Just In Time philosophy. They request suppliers to deliver the components at the exact moment they are needed. This has two beneficial effects.

  1. It reduces storage costs. The warehouse can be smaller, costing less to build and maintain. Less capital is locked in inventory. Less personnel is required to handle the components and maintain the warehouse.

  2. It surfaces problems. If there is little or no stock on the factory grounds, production must stop if a supplier is late. This surfaces logistical problems and makes it urgent to solve them. As a result, the operations of the company and its suppliers become more reliable.

However, Just In Time has one flaw. It makes the company fragile to supply chain disruption. For example, the recent pandemic that hit global logistics crippled companies relying on Just In Time suppliers.

The solution is to keep some stock, but make it hard to access. For example, a signature from the Operations Manager might be required to pull stock from the warehouse. This way, you have some protection against logistics disruption, and you partially cut storage costs and surface problems.

"Working with Luca was fantastic! He was straightforward and well-prepared, pinpointing numerous opportunities I had overlooked in my business plan. I wholeheartedly recommend him."

Christopher SamiullahChristopher Samiullah

I have helped dozens of business leaders change their organization's operational culture. If you're interested in working with me, send me an email.

Luca Dellanna

Best Practices for Operational Excellence

Simple principles and procedures that improve profitability

Cover of Best Practices for Operational Excellence

Some reviews

"Luca's Best Practices for Operational Excellence took my management to the next level. It's been almost a month since I started implementing the principles, but I can already say that I've noticed a significant improvement in my company's morale […] That feels amazing."
Avatar of Molson Hart

Molson Hart

CEO, Viahart

"The key action items resonate with what I have seen work and gave me a number of new ideas. I would recommend it as a worthy read to anyone who feels their business or team is a little out of whack"
Avatar of Taylor Pearson

Taylor Pearson

Principal, Mutiny Fund

Similar posts you might like

I will add more posts soon (subscribe to my newsletter to be notified).

Click here to view all of my posts.