Just in time or Just in case, what are they mean, and what are the advantages 👍and disadvantages 👎 of both methods. In the beginning, I would like to introduce to the readers that these are names of ways that the companies can manage their inventories wherever the company deals only with Finished goods like retailers or even a manufacturing company where the company has to have a finished good as well as direct material. Also In normal accounting treatment, the company considers the inventory as part of the assets, which means that the inventory is what the company has, but in this article, I would like to explain that the inventory can become a liabilities. In different meaning, the assets can be sort of costs generated instead of revenues generated.
Holding direct material or goods in the store can let the company pay more costs such as storage expenses, the raw materials are susceptible to spoilage, the goods are subject to ageing, and become an old fashion.
So because of these factors the company has to understand and select the right method to manage how, when and what to buy or manufacture.
Otherwise, some losses might be there in the future.
Just in time it one method that can be useful to keep the level of the inventory is low to avoid paying more storage costs, it is based on buying what you need when you need.
Simply when the customer came into the store and ask for inventory, the process starts from the beginning like obtaining the Direct material and then do the necessary process to complete the production.
On the opposite side, the MRP system is based on preplanning means it is based on the master budget which is already been made before starting the financial period.
And here the most important in this way that the plan has been established based on what the company expected what the market needs, it is not an arbitrary number but based on a lot of several factors.
So the Direct material or the finished goods are available to be provided to the customer.
JIT and MRP Systems both have advantages and disadvantages.
JIT can truly save the storage costs since it is in some cases can lead to zero inventory.
But the most important is the have a good relationship and communication with the supplier where the items have to arrived on time.
MRP system has brilliant advantages if the company can buy a lot of items at one time and obtain quantity discounts.
But still, the company has to pay for storage costs.
Finally selecting one system on another depends on the industry and the companies sizes and the nature of the processes.
Keep in mind that the MRP system and JIT serve the same purpose, but both in different way.
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