The most glaring deficiency of JIT is the absence of inventory to buffer production
interruptions. Current sales are constantly being threatened by an unexpected interruption
in production. In fact, if a problem occurs, JIT’s approach consists of trying
to find and solve the problem before any further production activity occurs. Retailers
who use JIT tactics also face the possibility of shortages. JIT retailers order what they
need now—not what they expect to sell—because the idea is to flow goods through
the channel as late as possible, hence keeping inventories low and decreasing the need
for markdowns. If demand increases well beyond the retailer’s supply of inventory, the
retailer may be unable to make order adjustments quickly enough to avoid irked customers
and lost sales. For example, a dockworkers’ strike at U.S. west coast docks during
the fall of 2002 had a strong impact on the Christmas shopping season. Many
retailers were affected as products ordered for delivery during the fall were locked up
at the docks. Toys “R” Us saw shortages of “Hello Kitty” merchandise result in significant
lost sales. Manufacturers also face problems with shortages. For example,
NUMMI (the U.S.-based joint venture between GM and Toyota) had to shut down
its Fremont, California, manufacturing plant due to shortages of imported engines and
transmissions. Yet, in spite of the downside, many retailers and manufacturers seem to
be strongly committed to JIT. Apparently, losing sales on occasion is less costly than
carrying high levels of inventory.