EFFECT OF JUST-IN-TIME INVENTORY SYSTEMS ON COST EFFICIENCY IN RETAIL CHAINS

Abstract

Inventory is one of the largest costs a retail chain carries, and how a chain manages it can be the difference between healthy margins and steady losses. Just-in-time (JIT) inventory management, which originated in manufacturing, promises to slash the cost of holding stock by having goods arrive only as they are needed rather than sitting in warehouses, and many retailers have adopted it in some form. Whether it actually delivers cost efficiency in the retail context—which differs markedly from the factory floor where JIT was born—is a question that deserves careful empirical examination. This paper investigates the effect of JIT inventory systems on cost efficiency in retail chains. Using a survey of retail firms combined with an analysis of published financial and operational data, we examine the relationship between the extent of JIT adoption and several dimensions of cost efficiency, including holding costs, stockout occurrence, and overall inventory-related expenditure. Our analysis found that greater JIT adoption was associated with significantly lower inventory holding costs and improved inventory turnover, supporting the core promise of the approach. At the same time, the relationship was not uniformly positive: firms that pushed JIT aggressively without robust supplier relationships and demand forecasting saw increased stockout risk, which eroded some of the cost gains and, in the worst cases, hurt sales. Regression analysis confirmed that JIT adoption significantly predicted cost efficiency, but that the strength of this effect was moderated by supply-chain reliability and demand-forecasting capability. The practical implication is clear: JIT can substantially improve retail cost efficiency, but only when supported by the operational foundations that make lean inventory safe. We argue that JIT in retail is best understood not as a switch to be flipped but as a capability that pays off in proportion to the supply-chain maturity behind it.