Just-in-time inventories management14.3 Mergers: the practicalities
The JIT system can only be reliably established where there are very close relation-
ships between users and suppliers. This requires that the user be prepared to guaran-
tee only to buy from the one supplier in respect of a particular inventories item and to
give the supplier access to the user’s production/sales plans. This enables the supplier
to match its production to the needs of the user in much the same way as would a
department of the user business supplying components or sub-assemblies to another
internal department. To work well, the system probably requires that supplier and
user be geographically fairly close to one another so that deliveries can be made fre-
quently and, when necessary, at short notice.
Achievement of low inventories levels of internally produced components and
sub-assemblies, and of finished inventories, normally requires short production runs,
that is, each production batch of a particular product or component is fairly small. To
be economical, this normally means that the costs of setting up each production run
are fairly low. High-technology production methods (robots and computer-controlled
manufacturing) typically have low set-up costs and considerable flexibility. This
makes an effective JIT system more achievable than it was in the past.
An effective system of JIT also requires a workforce willing to increase and decrease
its working hours from one period to another. This can pose serious problems for
implementing a JIT system, particularly in some western countries where regular
weekly working hours are an established feature of industrial employment. The ex-
istence of a pool of labour willing to come in at short notice to supplement the ‘core’
workforce during production peaks may provide a solution in some cases.
Clearly, a JIT policy will tend to lead to lower inventories levels from the user’s
point of view and, therefore, to savings in the costs of holding inventories. The atten-
tion given to quality control and assurance is also likely to lead to net financial
benefits. On the other hand, there may be additional opportunity costs arising from
the fact that the user cannot, in the short term at least, buy from different suppliers
according to price. Also, it may be fairly expensive to maintain a flexible workforce.
However, the increasing popularity of the JIT approach implies that many businesses
regard the policy as having net benefits for them.JIT in practice
JIT seems to be used quite widely in practice.
Boots Group plc, the UK’s largest healthcare retailer, recently improved the invent-
ories management at its stores. The business is working with a JIT system where there
is a daily delivery of inventories from its one central warehouse in Nottingham to each
retail branch. Nearly all of the inventories lines are placed directly on to the sales
shelves, not into a branch stores area. The business says that this brings significant sav-
ings of stores staff time and leads to significantly lower levels of inventories being
held, without any lessening of the service offered to customers.
Honda Motor Europe Limited, the UK manufacturing arm of the Japanese car busi-
ness, has a plant in Swindon in the west of England. Here it operates a well-developed
JIT system. For example, engines made by Honda in Japan arrive by lorry every two
minutes and just two hours before they are used in production. This is fairly typical of
all of the 200 suppliers of components and materials to the Swindon plant.