1. Establish long-term agreements
Long-term contracts give suppliers some financial security and express your level of commitment. As a result, the supplier is more likely to make the necessary efforts to deliver high-quality products on time.
In a JIT context, this often means signing Kanban, blanket order, or blanket/Kanban hybrid agreements with your suppliers.
Kanban is a Japanese term that essentially means “signal”. So under this type of contract you would maintain only enough inventory to manufacture the products you need in the very near future, and then send a signal (various methods exist) to your suppliers to tell them it is time to deliver a new shipment. Since under Kanban agreements production and deliveries generally occur daily, your suppliers will need to reserve labour and machinery for your production, while you will need to adhere to strict delivery schedules. In other words, it is a serious commitment from both parties.
Kanban agreements are a very good way to reduce inventory, but since the frequency of shipments depends on the demand, there are a few things that you need to keep in mind. The first one is total ordering costs, which should remain low enough to make more frequent purchases more affordable in the long run. The second is the inventory turnover ratio, also known as inventory turns, which basically indicate how often a company sells through its inventory. The faster inventory is turned, the less risk of loss and depreciative value and the better return on investment