What does the term "just-in-time" inventory imply?

The term "just-in-time" inventory fundamentally refers to a strategy where inventory is ordered and received only as it is needed in the production process or to fulfill customer demand. This approach minimizes storage costs and reduces the need for large quantities of stock to be kept on hand. By restocking inventory precisely when demand occurs, businesses can enhance operational efficiency and reduce waste associated with overproduction or surplus stock.

This method also helps to improve cash flow, as companies are not tying up capital in unsold inventory. It requires a well-coordinated supply chain and an effective communication system with suppliers to ensure materials arrive just as they are needed for production. In contrast, options that suggest large quantities of stock, keeping only essential items without regard for ongoing demand, or simply decreasing supply lead times do not accurately capture the core principles of the just-in-time approach.