What is "just in time" (JIT) warehousing and delivery all about?
Purchasing used to buy a periods worth of product once a period. They would also keep an additional periods worth of "back-up inventory" on hand.
Why is there a need for "back up inventory"? If demand is high, or the order was late in arriving, they might run out of product which could stop production or miss order ship dates (a very BIG problem).
In conventional warehousing, this is prevented by building large amounts of "back-up inventory" causing full warehouses, higher holding costs and greater chances of obsolete stock due to engineering changes or customer demand changes.
With JIT logistics, one gets deliveries once a week (or several times a day in some industries). This results in the reduction of "back-up inventory" by 75% and is accompanied by all the cost savings of holding the stock.
Since you can get much more frequent delivery, the chance of getting caught short almost disappears.
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