Just in Time Inventory Definition

by Neil Kokemuller Google

Just in time (JIT) inventory is a management system in which materials or products are produced or acquired only as demand requires. This approach to managing inventory has become increasingly popular in the early 21st century as suppliers and retailers collaborate to try to control inventory costs while still meeting customer demands.


Just in time inventory is intended to avoid situations in which inventory exceeds demand and places increased burden on your business to manage the extra inventory. Manufacturers using JIT processes want to use materials for production at levels that meet distributor or retailer demand but not in excess. Retailers only want to acquire and carry inventory that meets immediate customer demand. Excess inventory requires storage and management costs.

Manufacturer JIT

For manufacturers, using materials and producing products in excess of what distributors and retailers demand means you have to hold onto the inventory. This requires warehousing of finished goods to go along with already taxing costs to manage raw materials inventory. Extra space requires utilities costs and employees to store, organize and retrieve goods as needed. Additionally, excess production runs the risk of the business ending up with unwanted products and having to sell them at auction or let them go to waste.

Retailer JIT

On the demand side, retailers want to have just enough inventory to avoid stock outages, which can alienate customers. However, having significantly more inventory than is needed on the sales floor again requires significant storage space. Every foot of storage area in a retail store is space unused for sales. Additionally, retailers also pay utilities for storage areas and pay employees to organize and move extra inventory. They also have to discount excess inventory when demand really falls and even potentially throw out wasted or expired product.


Just in time inventory is generally regarded as an efficient inventory management system. Many suppliers and retailers partner in the early 21st century to coordinate their JIT efforts. This benefits both as the end customer gets the best value for the money. However, JIT is not without risks. The major risk is that a simple glitch in the supply system can cause stock shortages. A supplier facing erratic weather or transportation problems may have delayed shipments, causing inventory to run dry. The more critical the products are to the end buyer, the more sensitive they are to this precarious situation.

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