The three basic methods of controlling the level of stock are:
An order of fixed size is placed whenever stock falls to a certain level. The size of re-order will depend on the rate of consumption and the lead time (the time taken from ordering supplies to supplies arriving and being prepared for use).
We can see the level of stock (the red line) fall as goods are used. Once the level of stock falls to the re-order level, the company will order new supplies. The lead time measures how long it takes for the new stock to arrive. When the new stock arrives we see the stock level rise again to the maximum stock level.
The above diagram also shows what would happen if stocks were used up too quickly - stocks run out and there is a ‘stock out’ so the company can now no longer operate.
Orders of various sizes are placed at fixed intervals, e.g., every day, week or month. Stocks are topped up on a regular basis.
We can see that stocks are replenished to the maximum level at the end of every period. The re-order quantity is equal to whatever the company uses in that week.
JIT operates with minimal buffer stocks. It relies on daily or hourly deliveries from trusted suppliers. There is no safety net, and so a late delivery or a faulty shipment of components could bring an entire factory to a halt.
JIT aims to minimise the costs of holding stocks of raw materials, work in progress and finished goods. It is often said that in JIT production is pulled through rather than pushed through. This means that production runs for specific orders. Stocks are delivered when needed so that almost no buffer stocks are held to guard against production or delivery problems, hence suppliers, workers and machinery must be reliable. This approach may require several deliveries of stock per day, with the stock being sent directly to the production line for use.