MRP, JIT, ERP, ABC are acronyms representing types of inventory management. Select one, research it, and discuss its role in the management of inventory. In your discussion describe its strengths and weaknesses (pros and cons) and the industry or industries you are likely to find it being used. Include an example of a company that uses it and the products produced.
reply#1
What Is JIT? Just-in-Time (JIT)?
JIT stands for just-in-time. It is an inventory system and also a management strategy that aligns raw-material orders from suppliers directly with production schedules. According to Render et al (2017), one of the main objectives of JIT is to reduce the amount of in-process inventory on hand and make the manufacturing process more efficient. In the real-world, companies employ this inventory strategy and management system to do inventory control. By implementing such inventory control, they try to receive goods only when needed for production, and thus to increase efficiency and decrease waste, ultimately to reduce inventory costs. It is worth noting that this method requires accurate forecasts of demand and the JIT system has its own strengths and weaknesses.
Pros and Cons of JIT
Advantages of JIT Inventory System
JIT is a more cost-efficient method than traditional inventory methods. It helps save time and costs. First, it requires less warehouse space, with a faster turnaround of stock. Companies also spend less money on raw materials because they buy just enough resources to make the ordered products and no more. Besides, JIT helps reduce waste because a faster turnaround of stock prevents goods becoming damaged or obsolete while sitting in storage. More importantly, JIT allows companies to synchronize production schedules with demand since goods are produced only when needed. As such, companies can adjust their production schedules to changes in customers demands and also changes in labor and workforce.
Disadvantages of JIT Inventory System
The disadvantages of JIT are apparent when companies face supply shocks and price shocks from upstream of the supply chain. JIT leaves manufacturers venerable to supply shocks. Besides, JIT makes companies very sensitive to prices as when demand goes up, prices of supplies will probably go up too. Therefore, companies profit margin can be greatly affected. Furthermore, JIT will cause potential disruptions in the supply chain. The success of the JIT system highly depends on suppliers. Any breakdown in suppliers could conceivably stall the entire production process.
Applicable Industries and One Example
According to Investopedia, retailers, restaurants, on-demand publishing, tech manufacturing, and automobile manufacturing are some examples of industries that have benefited from just-in-time inventory (Investopedia, 2015).
The most successful example of implementing JIT is the automobile manufacturer, Toyota. JIT is also known as the Toyota Production System because Toyota was the first to implement JIT effectively in the 1970s and is still one of the most successful companies practicing JIT systems. At Toyota, raw materials are brought to the production floor only when the order is received from the customer and the product is ready to be built. During the production process, no parts are included in the next node or station unless they are required to. These steps help minimize the amount of inventory on hand, reduce the risk of having excessive inventory at its disposal, and thus lower the inventory costs.
References
Render, B., Hanna, M. E., Stair, R. M., Hale, T. S. (2017). Quantitative Analysis for Management. United Kingdom: Pearson.
What Are Some Examples of Just-In-Time Inventory Processes? (2020, May 15). Retrieved November 2, 2020, from https://www.investopedia.com/ask/answers/051215/what-are-some-examples-just-time-jit-inventory-processes.asp#:~:text=Retailers%2C%20restaurants%2C%20on%2Ddemand,just%2Din%2Dtime%20inve
reply#2
MRP, material requirement planning, is a sort of computer-based inventory management system that is used to enhance productivity. When we discuss the material requirement planning, we need to associate it with the concept of the bill of material (BOM). Simply speaking, the bill of material represents the components used to produce the finished goods. MRP will help the manufacturer to break down the product unit into the list of requirements of subassemblies. By looking into the breakdown, manufacturers have the chance to keep their inventory of components at a low but healthy level and purchase them at a low cost.
The most obvious advantage of the MRP is that can help the manufacturer to remain a low capital cost and best utilize all its production resources. Also, the data generated by employing the MRP system can be used to analyze the demand and trending, which is valuable for companies for planning the production and even the cash flow.
Meanwhile, the MRP requires high accuracy of the data collection and maintenance. If a company fails to keep its data warehouse clean, the planning performed based on the MRP will mislead the decision-making process, generating substantial loss to the company.
MRP and BOM are widely used within the smartphone OEMs. Like Samsung, they collect and forecast the demands of the smartphone to form its components requirement routinely by month or biweekly. They also use the MRP as a reference to enhance its component compatibility. This measure has successfully helped them lower the purchase cost by leveraging the scale of economics.
Reference:
“Lesson 12” (2020). California Institute of Advanced Management.
https://ciam.instructure.com/courses/471/files/344867/download?wrap=1
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