JIT Purchasing
The concept of just-in-time purchasing was developed by the Japanese. The method advocates reduction in the size of the purchased quantities to the extent so that materials reach the production point directly. This results in reduction in wastage, storage and maintenance costs.
The basic features of JIT purchasing are given below.
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Through proper use of JIT systems, both buyers and sellers can reach to the stage of zero defects. Both parties should come to an agreement that they do not deliver any defective item.
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Frequent shipment in small lot sizes is an important feature of JIT systems. This will reduce the inventory storing and maintenance costs.
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In the JIT purchasing system, the firm ensures that the high value components and materials arrive only when they are required. This reduces maintenance costs.
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A dedicated transportation system is used for transportation of materials to avoid delivery delays.
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Standard shipping and returnable containers are used to ensure safe transportation of materials.
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Stable production schedules are developed and communicated to the suppliers to ensure smooth flow of production.
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Electronic data exchanges are used to provide the information about the current status of the production process and the inventory level.
Table: Comparative Analysis of Purchasing Practice: Traditional and JIT
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Purchasing Activity
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JIT purchasing
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Traditional purchasing
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Purchase lot size
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Frequent purchase of lots, and in small sizes
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Purchase of lots in larger sizes, less frequent
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Selection of supplier
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Single source of supply for each type of material.
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Multiple sources of supply for each type of material.
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Evaluation of supplier
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Emphasis is on product quality, delivery performance, and price, but no percentage of rejections from a supplier is acceptable.
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Emphasis is on product quality, delivery performance, and price, but around two percent rejections from each supplier is acceptable.
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Receiving inspection
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Counting, receiving, and inspection of incoming parts is reduced as the supplier takes utmost care.
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Buyer is responsible for receiving, counting, and inspecting all incoming parts.
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Negotiating and bidding
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Primary objective is to achieve product quality through a long-term contract and fair-price.
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Primary objective is to get the product at the lowest possible price.
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Delivery schedule
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Concern for both inbound and outbound freight, and on time delivery. Delivery schedule is left to the buyer.
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Concern for outbound freight and lower outbound costs. Delivery schedule left to the supplier.
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Product specification
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"Loose" specifications. The buyer considers performance specifications more important than product design. Supplier is also encouraged to be more innovative.
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"Rigid" specifications. The buyer relies more on design specifications than on product performance, and suppliers will have less freedom in design specifications.
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Paperwork
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Less formal paperwork. Delivery time and quantity level can be changed by telephone calls.
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Requires a formal paperwork.
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The practice of the JIT purchasing system is different from the traditional purchasing system. The comparative analysis of the purchasing practice of traditional and JIT purchasing systems is shown in Table 12.1.
JIT purchasing practices enable firms to obtain the following benefits:
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Reduction in costs by lowering inventory carrying costs and reducing waste
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Improved quality
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Increased responsiveness and flexibility
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Administrative efficiency
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Production improvements through a lower number of inspections, ease in receiving materials, better plant layout and less paperwork.
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More responsiveness to customer needs
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Reduced capital requirements
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