Inventory Management: Why JIT Flunked College
- By Michael Wilson
- January 19th, 2018
Back in the 1980s, when the Japanese manufacturing industry was booming, what was called Just-In-Time (JIT) purchasing was credited as being one of the reasons for their success. The JIT inventory management concept dates back to the 1940s when Toyota first started using it to address their manufacturing parts needs.
The way it works is relatively simple. Goods are delivered just as an organization is about to need them.
The significant benefit of JIT is it helps reduce costs. Before JIT, an auto manufacturer, for instance, might purchase enough parts and supplies for their cars to last several months. That often meant they would have thousands, if not millions, of dollars in inventory sitting on shelves waiting to be needed. Plus, the manufacturer must have the storage space available to hold all of these supplies, which often meant constructing and maintaining large, costly warehouses. Further, once the supplies were delivered to the manufacturer, the company must have insurance, so that if these supplies were damaged or lost by fire, theft, floods, etc., the manufacturer’s investment would be protected.
Most, if not all, of these costs are eliminated when a JIT inventory management system is in place.
It is now well documented that many different types of organizations have benefited from JIT, especially manufacturers. However, JIT does have some problems, and some of these issues can cause havoc in an educational setting and prove costly as well. For instance:
- Supply shock. JIT is very dependent on precise coordination between manufacturers, suppliers, and customers. But, low inventory, lack of parts, inability to acquire natural resources, natural disasters, unexpected transport and delivery issues—all of which are referred to as causing “supply shock”—can interrupt the timely delivery of products and supplies. Because there is no inventory buffer, a gap between running out of supplies and the delivery of replenishments, should a college campus run out of restroom paper products, for instance, administrators likely will turn to other sources very quickly, often paying much higher prices just to get the products they need.
- Can’t deal with the unexpected. Most JIT systems are based on pre-existing purchasing models. Problems can arise when usage is not consistent. Suppose 500 cases of paper products are purchased every three months based on past purchasing patterns; what if a college still has 200 cases of paper products left at the end of the third month? As we mentioned earlier, JIT is based on “precise coordination” between manufacturers, distributors, and customers and disruptions in this coordination can mean that customer must wait for products or purchase products that are unneeded, which is exactly what JIT is designed to eliminate.
- Savings through bulk sales. Continuing with our paper product example, let’s say instead of having 500 cases of paper products delivered every three months, 1,000 cases are ordered and delivered at one time. Large orders such as this invariably provide cost savings. Manufacturers, as well as distributors, are often able to pass on rebates and discounts to customers when they make significant bulk purchases. This is similar to what Purdue University has done, but they store the products at the supplier’s warehouse. That avoids delays for delivery and sidesteps the warehousing and storage costs.
Effective Inventory Management
So now that we know that JIT may not be the best inventory management system for a college or university, what would be better? Unfortunately, there is no magic bullet, no all-encompassing inventory management strategy that we can turn to. But there are several things administrators can do to ensure they have the supplies they need when needed, and at a cost savings to boot.
It all starts with having an updated, living request for proposal (RFP). And because my specialty is cleaning products and procurement, let’s use the procurement of cleaning solutions and supplies as our example.
Several years ago, many colleges and universities updated their supply RFPs when they turned to a green cleaning program. They investigated what was available at the time and selected products that were high performing and cost effective. However, that was then; this is now. In a sense, that RFP is now dead.
Over the past few years, the manufacturers of cleaning solutions, tools, and equipment have introduced a number of new products specifically for green cleaning and other cleaning tasks. Different manufacturers, for instance, are now introducing machines that work effectively with just tap water or that use artificial intelligence to perform “repeatable” cleaning tasks without human guidance.
The point is, administrators should not resurrect a dead RFP and simply put a current date on it. We need a living RFP that changes as our needs change and as new, more effective cleaning products are introduced. The following are ways to do this:
- Inventory all cleaning solutions, tools, and equipment now being used on the campus; this is our benchmark.
- Continually check how often products are re-ordered. While JIT may not be the answer to our inventory management, administrators should have a solid idea how often different cleaning products—as well as most all products and other goods—need to be reordered.
- Conduct cleaning supply audits. The goal of the audits is to evaluate cleaning products now being used on campus. Ask why certain products are being selected. They may have proven to be high performing, easy to use, and cost effective at one time, but are they still?
- At least once per year, take the time to investigate what cleaning technologies are available and are being introduced by attending professional cleaning tradeshows, meeting with local distributors, and taking advantage of free online “dashboard” systems. These dashboards help administrators better understand what cleaning products are now available for different purposes and, using these dashboards, compare them with similar products as to performance, environmental impacts, costs, ease of use, etc.
- Always try to reduce or eliminate product redundancies. This is when products used for the same or similar cleaning task are purchased from different manufacturers. It's best to work with only one or two suppliers using just one or two products manufactured for the same purpose. This opens the door to bulk purchasing, which, as we said, can result in cost savings.
By taking these steps and more, we are building an inventory management system that ensures we have the most effective cleaning products we need when we need them and at the best cost. But this is not accomplished in one step. View inventory management as an ongoing, living process that must be evaluated and changed as necessary.