What is Just-in-Time Inventory: A Guide for Retailers

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"I can't find this in my size/color/favorite Disney character - are there more back?"

We've all heard (or used) this customer question. If you're at the end of a sale, there's usually no "return." What's on the floor is what's in stock, and this question means you're out of something.

For small retailers, revenue that walks out the door with an unhappy customer can be the difference between life and death. Just-in-time inventory aims to solve this problem by ensuring that there is always enough stock on hand, but only just.

Inventory is, relatively speaking, illiquid. In finance, the liquidity of an asset refers to how easily it can be converted into cash. According to AccountingTools , inventory is less liquid than cash, marketable securities, and accounts receivable. Inventory is more liquid than fixed assets (your office equipment) and goodwill (the value of your brand).

Having enough inventory to cover demand means you have more of your company's value in cash, increasing your liquid assets and giving you access to more investment options.

In this article, we'll look at how timely inventory management impact of accurate phone data on marketing success can help you keep customers happy while preserving cash, talk about the importance of demand forecasting for inventory management, and explore how much of the inventory process is science versus art.



What is just-in-time inventory?
Just-in-time inventory is a system that forecasts demand and maintains sufficient inventory to meet that demand, reducing excess inventory and increasing cash on hand.

The system was developed by Toyota and applied to its automobile manufacturing process. Instead of forecasting the number of customers coming through its doors, Toyota forecasted the number of cars it needed to produce in a given period of time.

The company's real focus was efficiency. Instead of over-ordering product, it tried to order only the amount needed to get through the production cycle, reducing the amount of "buffer" product. An unused buffer is ultimately a waste.

In retail, just-in-time inventory is also used to reduce buffer product. By forecasting as accurately as possible, you can minimize the amount of unsold inventory or the amount of inventory that needs to be discounted for sale.