As the name would imply, the heart of a JIT operation lies in the ability to deliver raw materials to the point of production at the exact time they are needed and in the precise quantities desired. What it does not imply, however, is that suppliers farther up the chain hold stock to create the illusion that the manufacturer is not carrying inventories. This has been the case in many instances, with the manufacturer technically not having raw materials inventories on its books but with inventories in the supply chain nonetheless.

Following the lean mentality, if a supplier holds inventory, the carrying costs of those goods eventually find their way into the selling price to the manufacturer. If not, the business becomes financially unviable for the vendor, which will either have to raise prices or, in a more dramatic play, seek other more profitable business opportunities. Thus, whereas the manufacturer may make up some ground by reducing assets on the balance sheet, the income statement suffers due to an increase in cost of goods sold. Looking again to the need to balance profitability with asset utilization, the exercise boils down to a case of "six of one and half a dozen of the other."

It is for this reason that the sharing of demand information with suppliers has become such an integral part of the JIT model. Perhaps a forerunner of collaborative planning, forecasting and manufacturing, this component of JIT is really the starting...