Just-in-Time Inventory Management: Calculating JIT Inventory & More
Learn how to calculate just-in-time inventory and discover strategies for implementing JIT inventory management to optimize stock levels and boost efficiency in your business.
Published April 22, 2025
In today’s competitive business landscape, managing inventory effectively can make or break a company’s success. Just-in-Time (JIT) inventory management offers a strategic approach to minimize overstock while ensuring that products are available when needed. This method helps businesses save on storage costs and streamline their operations. However, understanding the intricacies of how to calculate just-in-time inventory is essential for implementing JIT inventory management successfully.
In this blog, we will explore the key factors and steps involved in calculating JIT inventory and how businesses can leverage this method for better stock control and efficiency.
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What Is Just-in-Time (JIT) Inventory Management?
JIT inventory management is a strategy where businesses order or produce goods only when there is an actual demand for them, minimizing inventory levels and reducing the costs associated with holding excessive stock.
» Inventory management is just the first step. Here are some other tips to improve your Shopify store
Automate Your Store With EGNITION Tools
Improve inventory management with Egnition’s automation tools to maintain accurate stock levels and enhance customer experience.
5 Benefits of JIT Inventory Management for Businesses
1. Lower Inventory Holding Costs
By keeping only what you need on hand, JIT inventory management helps you save on storage, insurance, and handling costs. A case study in the cement industry showed that implementing JIT strategies led to a 50% reduction in total inventory costs. This means less money tied up in unsold stock and more flexibility to invest in other areas of your business.
2. Improved Cash Flow
With JIT inventory management, you avoid spending large amounts of money on inventory that just sits in storage. Instead, you buy what you need when you need it, which helps you keep more cash on hand for other parts of your business.
3. Faster Inventory Turnover
JIT inventory management encourages quicker movement of goods, reducing the time items spend in storage. In the healthcare sector, adopting JIT practices led to higher inventory turnover ratios, meaning products were used or sold more rapidly, improving efficiency and reducing waste.
4. Enhanced Responsiveness to Demand
By aligning production closely with actual demand, JIT inventory management allows you to respond more swiftly to customer needs. This agility can lead to increased customer satisfaction and a competitive edge in the market.
5. Reduced Waste
JIT inventory management minimizes overproduction and excess inventory, leading to less waste. When products are ordered and produced based on actual demand, businesses reduce the risk of stock sitting unsold, especially for perishable goods. This not only saves costs but also supports more sustainable business practices by reducing the environmental impact of unsold products.
» Do you have more than one store? Understand how to manage multi-store inventory with the right apps
JIT vs. Economic Order Quantity (EOQ)
Category | JIT | EOQ |
|---|---|---|
Ordering Approach | Stock is ordered or produced only when needed, typically just before demand arises. | Orders are placed in advance based on optimal batch sizes to reduce order frequency and avoid stockouts. |
Inventory Levels | Very low inventory is maintained, often close to zero, to reduce storage costs. | Larger inventory is kept on hand, including safety stock to cushion against demand spikes or supply delays. |
Flexibility | Highly adaptable to changes in demand, making it ideal for fast-paced or unpredictable markets. | Less responsive to short-term demand changes, but stable for businesses with consistent sales cycles. |
Risk Management | Carries higher risk during supply chain disruptions or demand spikes due to lack of buffer stock. | More resilient in uncertain times thanks to pre-stocked inventory. |
Best Fit For | Businesses focused on lean operations, limited storage, tight cash flow, or fast-moving markets like fashion, tech, or ecommerce. | Businesses that prefer stability, have predictable sales patterns, and want to reduce ordering frequency, such as manufacturers or wholesalers. |
» Expand your knowledge by understanding out-of-stock vs. sold-out on Shopify
Best Practices of a Successful JIT Inventory System
- Supplier coordination: To make a JIT inventory system work, you need suppliers you can count on. If your supplier is often late or hard to reach, your whole setup can fall apart. Stay in regular contact, share timelines, and even involve them in your planning. The smoother the back-and-forth, the less chance you’ll be caught without stock when you need it most.
- Demand forecasting: Since you’re only ordering what you need, when you need it, your demand forecasts have to be highly accurate. Look at past sales, seasonal trends, and any upcoming promotions. The more accurately you can predict what your customers will buy and when, the easier it is to stay efficient without risking stockouts."
- Workflow integration: Your whole system—from sales to fulfillment—needs to be connected. If someone places an order and it doesn’t automatically trigger a stock update or reorder, things can fall through the cracks. Connect your sales platform, inventory tools, and supplier system so everything updates in real-time. That way, you're not relying on memory or manual steps to keep things moving smoothly.
» Here's everything you need to know about forecasting Shopify inventory
Just-In-Time Inventory Formula
The basic JIT inventory formula helps you keep just enough stock on hand without overordering. Here's how it works:
JIT Inventory = Average Daily Usage × Lead Time
For example, if you typically sell 10 units per day and it takes 5 days for new stock to arrive:
10 units/day × 5 days = 50 units
That means you should aim to keep 50 units in stock. To avoid running out due to unexpected delays or a sudden spike in sales, you can also add a safety buffer to that number.
» Do you have deadstock? Check out these strategies to get rid of obsolete inventory in Shopify
How to Calculate Just-in-Time Inventory: Real-World Breakdown
A small clothing retailer that sells spring jackets uses the just-in-time inventory formula to avoid both overstock and missed sales. They analyze sales from the previous year, factor in trends, and coordinate closely with their supplier. The strategy hinges on four key stages.
Stage 1: Demand Forecasting
The retailer starts by forecasting demand for the jackets. They examine last year’s spring sales, adjust for this year’s market trends, and factor in promotions and weather forecasts.
For example, they predict an average of 10 jackets sold per day—around 70 per week—during peak spring months.
Demand forecasting uses historical data, current trends, and upcoming events to estimate future needs. Assumptions include a similar climate and growing local interest. This forecast feeds directly into the JIT inventory management process, ensuring the retailer orders only what’s needed, when it’s needed.
» Learn how Excel can help you with inventory forecasting
Stage 2: Supplier Coordination
Next, the retailer works closely with their jacket supplier. They negotiate flexible terms and focus on a short delivery lead time of around 4–7 days and small minimum order quantities. Communication is streamlined so the supplier is prepared for frequent orders rather than occasional bulk shipments.
For example, the supplier agrees to ship as few as 50 jackets with a reliable 4-day transit time. This supplier coordination supports JIT inventory management by making sure jackets can be replenished quickly without piling up excess stock.
Stage 3: Reorder Timing
With average daily sales of 10 jackets and a 4-day lead time, they reorder when inventory drops to 50 units. That covers 40 jackets for lead time, plus a 10-unit safety buffer.
For example: (10 units × 4 days) + 10 safety stock = 50 units
If they start with 80 jackets, they’ll reorder once the stock hits 50, ensuring the next shipment arrives just in time.
Stage 4: Inventory Tracking
The retailer continuously tracks inventory levels and sales in real-time and each week they compare forecast vs. actual sales and check how much stock is left. If sales are higher than expected, they know to expedite or increase the next order, or if they're lower, they can hold off slightly.
For example: In the second week, they sell 75 jackets instead of the expected 70, leaving only 5 units by the week’s end. This prompts them to place a larger reorder of 85 jackets for the following week.
Weekly jacket stock and reorder summary
The table below illustrates a four-week period for the spring jackets. It shows how the retailer adjusts orders based on actual sales.
Week | Forecast Sales | Actual Sales | Start Inventory | End Inventory | Reorder Placed (units) |
|---|---|---|---|---|---|
1 | 60 | 60 | 80 | 20 | 60 |
2 | 70 | 75 | 80 | 5 | 85 |
3 | 80 | 78 | 90 | 12 | 48 |
4 | 50 | 55 | 60 | 5 | 0 (season end) |
» Need more help? See our guide to managing your Shopify inventory better
Risks of the JIT Inventory System and How to Stay Prepared
Delays from suppliers
- If your supplier is late even by a day or two, you might not have enough stock to fill orders. This can lead to unhappy customers or missed sales.
- To avoid this, try working with backup suppliers or keeping a small safety stock for your top-selling items, as the JIT inventory system relies on timely deliveries.
Sudden demand spikes
- A sudden increase in orders, like during a flash sale or a viral moment, can leave you short since the JIT inventory system models don’t leave much wiggle room for surprises.
- To avoid this, you can reduce the risk by tracking trends closely and planning for busy periods. It also helps to tag certain items as “high risk” and keep a little extra on hand for those, just in case.
Inaccurate data
- If your sales or stock numbers are off, your whole system can fall apart. JIT only works when your data is reliable.
- To avoid this, make sure your sales and inventory tools are connected and syncing properly. Do regular checks to catch any errors early and fix them before they cause problems.
Smarter Stock Control With EGNITION
EGNITION supports your inventory strategy with tools to stay responsive and stocked.
StockIQ: Track variant inventory levels and export restock reports.
Multi-Store Sync Power: Synchronize inventory levels across stores.
Bestsellers reSort: Arrange products by top sellers for improved visibility.
» Here are the best inventory management systems for your Shopify store
How Egnition Supports Just-in-Time Inventory Management
Egnition is designed to enhance the effectiveness of JIT inventory management by ensuring that inventory data is updated in real-time across all your stores.
Egnition provides tools that allow you to track and manage low-stock items, hide sold-out products, and adjust inventory based on real-time demand. These tools work together to help you implement a smooth and responsive JIT inventory system, ensuring you maintain optimal stock levels while avoiding the pitfalls of overstocking or running out of products. Egnition’s tools help keep your inventory steady, even during sudden sales spikes or seasonal changes—making it easier to stick to JIT principles.
» Get started today with EGNITION's inventory management solutions
