Just-in-Time Manufacturing

In a factory, many individual parts are assembled into a product. In the past, companies stored large quantities of these parts as stock. Just-in-time manufacturing does away with this. A part arrives only shortly before the moment it is actually installed. Sometimes this is just a few hours' lead time. The supplier’s truck thereby becomes, in a sense, a warehouse on wheels.

Why inventory costs money

Every part sitting in a warehouse represents money that has already been paid out but is currently earning nothing. On top of that come costs for the warehouse itself, for heating, insurance, and staff. Whoever stores less needs less space and ties up less capital. This was exactly the main argument when the method spread worldwide starting in the 1970s.

But it’s not just about money. A large warehouse also hides problems. If a supplier sends defective parts, this might not be noticed for weeks when a thousand units are sitting in stock. If, on the other hand, parts arrive freshly each day, a defect shows up immediately. Just in time therefore forces a company to have clean, well-organized processes.

The price for this is low reserve capacity. If a delivery fails to arrive, production often comes to a halt within hours. During the Covid pandemic and the chip shortage starting in 2021, entire car plants had to pause production as a result. Since then, many companies have again built up small buffers for critical parts. In the industry, this is referred to as “just in case” rather than “just in time”.

The call comes from the assembly line

Classic production works according to plan: demand is estimated and material is pushed into the factory. Just in time reverses this direction. Only when a station uses up material does it signal demand further back down the line. Experts call this a pull principle, because demand pulls the parts through the factory.

The oldest tool for this is the kanban card, a simple signal card originating from the Toyota plant. When a crate is emptied, its card goes back to the supply point and triggers replenishment. Today, this is handled by data systems that automatically inform the supplier. But the underlying principle has remained the same.

For this to work, several things have to be right. Suppliers are often located within just a few kilometers. Delivery times are agreed to the quarter hour. And machines must be able to be quickly retooled for a different model, otherwise small batch sizes aren’t worthwhile. Just in time is therefore not a single trick, but an entire bundle of coordinated rules.

From the car plant to the cloud invoice

The method is most visible in the automotive industry. Seats, for instance, are sometimes delivered in the exact sequence in which the car bodies arrive on the assembly line. In business news, the term usually comes up when something goes wrong: during port congestion, strikes, or blocked shipping routes. Reports then state that supply chains are “too tightly timed”.

The pattern can also be found outside of factories. Supermarkets order fresh goods day by day based on sales data. Data centers rent server capacity only for the duration of a computation instead of maintaining their own hardware. In software, there is even a term of the same name, just-in-time compilation, in which program code is only translated at the moment of execution. What they all have in common: nothing is kept in stock that will only be needed later.

A common misconception is that just in time simply means “fast delivery”. What is actually meant, however, is punctuality, not speed. Material delivered too early is just as disruptive as material delivered too late, because no space has been planned for it.