With the JIT manufacturing system, materials are purchased in small
quantities delivered frequently just before they are needed for production. By
ordering small batches that are consumed almost as soon as they arrive, an
organization can utilize space for production purposes that they would
normally hold for “just-in-case” inventory management. Additionally, the costs
of a capital outlay for the “just-in-case” ordering mentality, when combined with
the costs associated with holding large amounts of inventory, are in most cases
higher that the freight costs and smaller discounts associated with the smaller
lot size purchases. According to A. Ansari, “Ford Motor Company estimates
that every dollar’s worth of parts carried in inventory costs the company 26
cents, mainly in interest and insurance” (Ansari and Modarress, 1990). The JIT
manufacturing process eliminates wasted space and tied-up capital that can be
allocated to alternative uses to improve the overall success of the organization
(Ptak, 1997).