Just-in-Time: Producing as Close as Possible to Actual Demand
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Does your inventory really keep up with demand?
Schedule a meetingDiscover AI-Powered Sales ForecastingJust-in-time (JIT) involves producing and delivering only when needed, in the exact quantities required. Developed at Toyota in the 1950s, it aims to reduce inventory, work-in-progress, and waste. In retail, it limits excess inventory that needs to be marked down, but makes the retailer dependent on the accuracy of its forecasts.
The Essentials in 6 Questions
Demand-driven flows, with minimal inventory.
Supply, purchasing, suppliers, and indirect pricing.
For fast-moving products with short lead times.
Especially for fresh foods and certain standard manufactured goods.
Reduce inventory, markdowns, and tied-up cash.
Detailed forecasting, responsive suppliers, and contingency management.
Why Just-in-Time Is Relevant to Pricing
Because less inventory means fewer markdowns and more cash on hand.
- Reduce inventory storage and financing costs.
- Minimize markdowns by putting only the quantities needed to meet projected demand on the shelves (see “markdown”).
- Improve the freshness of the products offered, and thus the perception of quality.
A concrete example: a 50 percent reduction in the health-related price markdown
By switching to just-in-time distribution of its yogurt and prepared meals, a retailer has reduced its markdown rate from 3.8% to 1.9% and is saving 1.2 M€ per year.
More frequent deliveries, fewer markdowns
Fresh Products · Yogurts and Prepared Meals
annual savings in this category, thanks to the switch to just-in-time delivery with suppliers.
Health-related write-off rate prior to the transition to just-in-time
Markdown rate after biweekly deliveries adjusted to meet demand
Weekly deliveries in large quantities will become biweekly, adjusted to meet demand as predicted by AI models.
How to Implement Just-in-Time in Retail?
Three conditions, and a supporting role for the prize.
Reliable forecasting at the point of sale
At the necessary level of detail, which requires AI models.
Responsive upstream logistics
Suppliers capable of delivering on short lead times with a high service level.
Careful Management of Unforeseen Circumstances
Stockouts, unexpected spikes in demand.
Pricing can smooth out demand when inventory is tight: a slight increase to slow sales, a slight decrease to speed them up, provided you know the price elasticity (see how to calculate price elasticity using data). The forecast is based on our AI-driven sales forecast; any remaining inventory is handled through our markdown and clearance offerings. Method:AI-driven sales forecasting in retail. See also the bullwhip effect.
The 3 Common Mistakes in Just-in-Time
An unreliable supplier, unsuitable products, or an overlooked operational risk.
- Switching suppliers without verifying the supplier's reliability: any disruption on the supplier's end immediately becomes a disruption for the customer.
- Applying JIT to unsuitable products: slow-moving items or those with long lead times are not suitable for this approach.
- Don't overlook operational risks: strikes, health crises, or supply chain disruptions are immediately evident on the shelves.
Frequently Asked Questions
Short answers to the most frequently asked questions about just-in-time.
What is Just-in-Time (JIT)?
Just-in-time is an industrial and logistics management system that involves producing and delivering goods only when they are needed, in the exact quantities required. Developed at Toyota in the 1950s, it aims to minimize inventory, work-in-progress, and waste.
Is just-in-time suitable for all categories?
No: It works well for fast-moving, short-lead-time products (perishables, standard items), but remains risky for seasonal products with long lead times (seasonal apparel, Christmas toys).
What impact will this have on suppliers?
A shift in inventory management upstream: Suppliers must hold inventory to deliver quickly, which weighs on their profitability unless they receive a negotiated benefit in return (volume commitment, forecast sharing).
Are just-in-time and e-commerce compatible?
Yes: Dropshipping and pre-orders are extreme examples of this, where the retailer doesn't even stock the product until an order is placed.
Key Takeaways
- Just-in-time delivers what's needed, when it's needed.
- It reduces inventory and offers discounts, but relies on reliable forecasts.
- It is suitable for high-turnover products with short lead times.
Do you want to make your pricing more reliable when inventory is tight?
Booper aligns your pricing decisions with your supply chain constraints.
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