Operations Management

Just-in-time (JIT) stock management involves ordering stock only as it is needed for production to minimize inventory costs.. Just-in-time aims to receive materials precisely when they are required for production, minimising the cost of holding inventory.

Increasing output reduces average unit costs through economies of scale.. Economies of scale occur when increasing output reduces average cost per unit, partly because fixed costs are spread across more units.

Just-in-time (JIT) stock management is a strategy that aims to reduce the costs associated with holding inventory by ordering stock only as it is needed for production. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Many people confuse just-in-time (JIT) stock management with holding large buffer stocks or producing goods in advance of demand, which are actually the opposite of the JIT approach. Others may think that JIT involves outsourcing all inventory to a third party, which is not a key characteristic of this strategy.
• !Some students might confuse diseconomies of scale, where increasing output leads to rising average costs, with economies of scale. Another common mistake is not understanding the role of fixed costs in reducing average unit costs.

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