Just-In-Time Inventory

Just-In-Time Inventory

Management Accounting, JIT Inventory and Marketing

Just-in-time inventory is a term used by management accountants. Almost everyone has heard about management accountants at least once, but who are they, what do they do? Management accounting is primarily directed at internal users of a firm, unlike financial accounting which aims to answer questions external users may have. Just-in-time inventory has many advantages, such as extra storage space due to lower and lesser inventories. In merchandisers selling food, it also means less risk of the produce to go bad. Still, even in clothing manufacturing just-in-time inventory may free up much needed space. Storage space is expensive and adds to fixed costs, such as manufacturing overhead, also sometimes called factory overhead. The following short business essay covers some concepts taken from management accounting, as well as some basics in marketing. Most undergraduate students in commerce, management or business degrees and programs would go over these theoretical constructs at some point of their academic careers.

Management accountants know exactly how much metal or other material should be used to construct this bench. Image: Elena

Just-in-time inventory, just like other accounting concepts may be applied to one’s everyday life. For example, some people go to the pharmacy and buy three bottles of shampoo at the same time. At times, because the shampoo is on sale, other times because they simply fear running out of a product. Applied to real life of individuals, buying one bottle of shampoo when the last has been used up would represent just-in-time inventory. Whether buying extra products or waiting until one really needs the products represents, of course, a purely personal choice. Interestingly enough, resellers and retail stores often try to give incentives to customers to buy more. The strategy is evident in retail clothing establishments when sales are advertised as ‘buy one get one half price’ and so on. However, while the sale may be attrative and indeed save money on the purchased shirt, a consumer may end up with items he or she did not or does not need, simply because of a shrewd and effective marketing strategy.