Inventory management is a critical part of business operations. However, the methods chosen by different companies to undertake this task determine whether they will be successful, or not. This paper examines two scenarios where businesses could maintain high inventory levels or adopt the just in time (JIT) and lean manufacturing techniques to manage their stock. In the end, a review of both techniques is conducted to establish which one is best.
A Case for Building Inventory Levels
Companies could build up their inventory levels for varied reasons. One motivation for doing so is to anticipate variations in production demand (Aradhye & Kallurkar, 2014). For example, the demand for raw production materials often varies with the volume of order quantities. Changes in demand are responsible for these variations. They also affect the supply of raw materials that companies can order and store (Aradhye & Kallurkar, 2014). Therefore, maintaining high levels of inventory could help organizations to anticipate variations in the quality and supply of the final product needed in the market.
A second case for building inventory levels is the need to cater for cyclic or seasonal demand (Chalotra, 2013). This situation is mostly applicable to companies that produce seasonal products. Therefore, they can increase their inventory levels in anticipation of a surge in demand during the high season. The motivation for doing so is to supply raw materials for production in a short notice (usually to meet a surge in demand) (Chalotra, 2013). Companies may also maintain high inventory levels to enjoy the benefits of economies of scale associated with procurement. Kamau and Kagiri (2015) highlight this benefit by arguing that buying stock in high quantities is better than purchasing small quantities. The economies of scale realized this way are beneficial to organizations because they help them to increase their profitability.
Another case for maintaining high inventory levels is to reduce transit times and associated transport costs. This reason is applicable to companies that procure goods from far-flung locations. Indeed, it is cheaper to buy and transport stock in large quantities as opposed to doing so when they are in small batches (Kamau & Kagiri, 2015). This procurement strategy is also a faster means of getting goods and services to the desired locations because the alternative would mean that transporters have to wait longer to fill their vessels before transporting products. Although some organizations may find it prudent to maintain high inventory levels, as highlighted above, there are some situations where this plan may not be in their best interests. In such cases, it may be wise for them to use JIT or lean manufacturing.
A Case for using JIT and Lean Manufacturing
The most cited reason for using JIT and lean manufacturing methods is a reduction in waste (Render & Heizer, 2013). Traditional forms of inventory management are known for leaving companies with huge pallets of waste (Javadian, Babu, & Talari, 2013). Consequently, organizations have to reduce their prices significantly to eliminate unsold/unused goods from their inventories. The JIT and lean manufacturing methods solve this problem because they allow organizations to respond more effectively to their needs and those of their customer. This way, these approaches make them more efficient in their operations.
Traditional methods of inventory management often force organizations to incur huge overheads in safekeeping (Render & Heizer, 2013). However, the JIT and lean manufacturing methods help to solve this problem because they eliminate the excess inventory that needs safekeeping. Therefore, these two approaches lead to lower warehouse costs. Generally, the JIT and lean manufacturing methods provide companies with an opportunity to manage their stock better. The methods are integral to making their inventory management more efficient and competitive. Additionally, having an efficient inventory management system would make them more competitive because it may easily result in lower manufacturing costs, which could be passed on to the consumers, thereby making a company’s products more competitive in the market. Nonetheless, as Render and Heizer (2013) point out, eliminating waste and participating in lean manufacturing is not enough for companies to remain competitive in the long term; instead, they must always be engaged in continuous improvement to attain these high levels of success.
Which Methodology should be Followed and Why
This paper demonstrates that there may be unique situations where maintaining a high inventory level and eliminating unnecessary stock may work for different types of companies. For example, having a lean inventory management process is more superior to the traditional method of storing a lot of inventory in the hotel industry. Therefore, it should be adopted at the expense of the traditional stock management method. The justification for this approach is that the JIT and lean manufacturing methods are more efficient and responsive to the needs of hotels compared to the traditional method of inventory management, which encourages them to hold huge inventories in anticipation of future sales (Villa & Taurino, 2013). Lastly, since many hotels stock perishable products, the traditional method of inventory management is misaligned with its operations because it could lead to high levels of inefficiencies that may cause the perishable goods to spoil.
The JIT and lean manufacturing methods are more attuned to the realities of the global marketplace, which is highly competitive and cutthroat. Companies cannot afford to accommodate the inefficiencies associated with traditional inventory management methods. They need more efficient and prudent ways of doing so. The JIT and lean manufacturing methods provide this opportunity because they offer prudent ways for companies to remain competitive.
Aradhye, S., & Kallurkar, S. (2014). A case study of just-in-time system in service industry. Procedia Engineering, 97(1), 2232-2237.
Chalotra, V. (2013). Inventory management and small firms growth: An analytical study in supply chain. Vision, 17(1), 213-222.
Javadian, A., Babu, N., & Talari, H. (2013). Just-in-time manufacturing system: From introduction to implementation. International Journal of Economics, Business and Finance, 1(2), 7–25.
Kamau, L., & Kagiri, A. (2015). Influence of inventory management practices on organizational competitiveness: A case of Safaricom Kenya Ltd. International Academic Journal of Procurement and Supply Chain Management, 1(1), 72-98.
Render, B., & Heizer, J. (2013). Operations management: Flexible version (11th ed.). New York, NY: Pearson.
Villa, A., & Taurino, T. (2013). From JIT to Seru, for a production as lean as possible. Procedia Engineering, 63(1), 956-965.