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INTRODUCTION

Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and


decrease waste by receiving goods only as they are needed in the production process, thereby
reducing inventory costs. This method requires producers to forecast demand accurately. This
inventory supply system represents a shift away from the older just-in-case strategy, in which
producers carried large inventories in case higher demand had to be met. Just in time (JIT) is
an inventory management system, used to manage the stock that is kept in storage. It involves
receiving goods from suppliers as and when they are required, rather than carrying a large
inventory at once.

EXAMPLES OF JUST-IN-TIME INVENTORY:

Small business owners turn to just-in-time inventory to save money and reduce waste, while
still providing their customers with the products they want and need. Just-in-time inventory
systems let small business owners produce products after they receive a request from
customers, rather than having already assembled products on the shelves waiting for
purchase. This inventory system was established by Toyota in the 1970s, and is still used by
various small businesses today.

Gift Basket Drop-Shipping

Drop-shipping companies let small business owners use the just-in-time inventory system to
service their customers. For example, an entrepreneur who wants to start a gift basket
business can purchase all of the supplies to create gift baskets for a variety of holidays and
occasions. If no one purchases the baskets, though, the entrepreneur is stuck with excess
inventory and more than likely will lose money. On the opposite end of the spectrum, a
business owner could partner with a drop-ship gift basket company and place orders as they
arrive. This way the business can avoid having inventory on hand and order simply based
solely on customer demand.

Fast-Food Restaurants

Fast-food restaurants use just-in-time inventory to serve their customers on a daily basis
during breakfast, lunch and dinner. Fast food restaurants have cheese, burger patties and all

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the fixings and toppings on hand, but they don't start assembling and cooking their
hamburgers, sundaes or fish sandwiches until a customer places an order.

Florist

A florist, operating her business out of her home, can use a just-in-time inventory system to
manager her orders, save time and money, while still getting quality finished products to her
clients. A local, home-based florist can take orders from customers for everything from
weddings and baby showers to corporate events. Once an order is place, instead of reaching
into inventory that's been sitting (and starting to look unattractive), the florist can visit a
nearby flower shop or flower mart to pick up the flowers needed to make the arrangements.

Print-on-Demand Publishing

Many authors, across various genres, forgo the traditional approach to securing book deals
and self-publish their work. Self-published authors can elect to print a large portion of books
at once, in hope that they sell, or they can take advantage of just-in-time inventory by
working with a printer that offers print-on-demand services. Print-on-demand companies
don't print the books until a customer places an order.

Computer Manufacturers

Computer manufacturers use just-in-time inventory to control the manufacturing and ordering
of their computer systems. Rather than a warehouse filled with pre-assembled computers, the
companies places orders for computer parts as customers make purchases. The computer
firms by their parts from various suppliers.

FEATURES OF JUST-IN-TIME INVENTORY


1. Produce with perfect quality.

2. Produce with minimum lead time.

3. Produce products with only those features the customer wants.

4. Produce with no waste of labor, material or equipment, every movement must have a
purpose so that there is zero idle inventory.

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5. Produce with methods that allow for the development of people.

ADVANTAGES OF JUST-IN-TIME INVENTORY:


Companies like to use JIT as it is seen as a more cost efficient method of holding stock. Its
purpose is to minimise the amount of goods you hold at any one time, and this has numerous
advantages:

Less space needed: With a faster turnaround of stock, you dont need as much warehouse
or storage space to store goods. This reduces the amount of storage an organisation needs
to rent or buy, freeing up funds for other parts of the business.
Waste reduction: A faster turnaround of stock prevents goods becoming damaged or
obsolete while sitting in storage, reducing waste. This again saves money by preventing
investment in unnecessary stock, and reducing the need to replace old stock.
Smaller investments: JIT inventory management is ideal for smaller companies that
dont have the funds available to purchase huge amounts of stock at once. Ordering stock
as and when its needed helps to maintain a healthy cash flow.

All of these advantages will save the company money.

DISADVANTAGES OF JUST- IN -TIME INVENTORY:


JIT unfortunately comes with a number of potential disadvantages, which can have a
significant impact on the company if they occur.

Risk of running out of stock: By not carrying much stock, it is imperative one has the
correct procedures in place to ensure stock can become readily available, and quickly. To
do this, one need to have a good relationship with your supplier(s). one may need to form
an exclusive agreement with suppliers that specifies supplying goods within a certain time
frame, prioritising your company. JIT means that one becomes extremely reliant on the
consistency of its supply chain.

Lack of control over time frame: Having to rely on the timeliness of suppliers for each
order puts a company at risk of delaying their customers receipt of goods. If it doesnt
meet their customers expectations, they could take their business elsewhere, which would
have a huge impact on their business if this occurs often.

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More planning required: With JIT inventory management, its imperative that
companies understand their sales trends and variances in close detail. Most companies
have seasonal sales periods, meaning a number of products will need a higher stock level
at certain times of the year due to higher demand. Therefore, one need to factor that into
planning for inventory levels, ensuring suppliers are able to meet different volume
requirements at different times.

If run properly, JIT inventory management is seen as one of (if not the) best ways of
managing inventory. While it is not without risks, it has significant rewards, and is ideal for
those who are able to plan carefully in advance, and build strong relationships with suppliers.

WHY JUST- IN -TIME INVENTORY MANAGEMENT


IS IMPORTANT?
It is important to look into the seven types of deadly wastes and avoid it.

Seven Types of Deadly Waste

Overproduction
Overproduction occurs when operations continue after they should have stopped. The results of
overproduction are;
Products being produced in excess of whats required
Products being made too early.
Excess inventory carrying costs
Waiting
Also known as queuing, waiting refers to the periods of inactivity in a downstream process that
occur because an upstream activity does not deliver on time. Idle downstream resources are
then often used in activities that either dont add value or result in overproduction.
Transport
This is unnecessary motion or movement of materials, such as work-in-process (WIP) being
transported from one operation to another. Ideally transport should be minimized for two reasons;

It adds time to the process during which no value-added activity is being performed.
Handling damage could be incurred
Extra production
This term refers to extra operations, such as rework, reprocessing, handling or storage that
occurs because of defects, overproduction or excess inventory.

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Inventory
This refers to inventory that is not directly required to fulfill current Customer orders.
Inventory includes raw materials, work-in-process and finished goods. Inventory all requires
additional handling and space.
Motion
This term refers to the extra steps taken by employees and equipment to accommodate
inefficient process layout, defects, reprocessing, overproduction or excess inventory. Motion
takes time and adds no value to the product or service.

To move and add value is called work. To move and not add value is called motion. Motion, then,
means moving without working, moving and adding cost.

Defects
These are products or services that do not conform to the specification or Customers
expectation, thus causing Customer dissatisfaction.

WHAT IS JUST-IN-TIME INVENTORY CONTROL?


Just-in-time (JIT) inventory control reduces the amount of inventory that a company
maintains. The concept is based on a cluster of lean manufacturing activities that are designed
to only manufacture enough products to meet customer demand. This control system does so
by pulling demand through a production facility, where each step in the production process is
only authorized to produce a limited amount of inventory.

Just-in-time inventory control involves implementation of the following concepts:

Pull concept. Under JIT, each step in the production process is triggered by a notification,
or kanban, that is provided to it by the downstream workstation that is a request for a
specific quantity of a specific item. A workstation is only allowed to produce the exact
amount of the authorization. If the downstream workstation issues no kanban, then a
workstation will remain idle until notified. Thus, the pull concept massively reduces the
amount of work-in-process inventory. By comparison, a traditional push manufacturing
system runs work orders through the production system that are based on forecasts, and
which typically result in much larger quantities of inventory in the production system at
any given time.

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Lot sizes. Wherever possible, JIT advocates very small production lot sizes, preferably of
just one unit. This means that inventory moves through the production process in very
small, discrete batches. As each lot is completed, it is immediately passed along to the
next downstream workstation, where the production staff inspects it, and can reject it at
once if quality standards are not met. This immediate feedback loop greatly limits the
amount of scrap generated within the production system.

Machine setups. JIT advocates small lot sizes, but this is impossible when it takes a long
time to set up a machine for each production run. Consequently, there are a number of
tools and concepts available for greatly shortening machine setup times. By doing so, it
becomes cost-effective to rapidly re-set a machine to manufacture even a single unit.
This, in turn, tends to reduce inventory levels, since there is no longer a need to spread the
cost of a machine setup over a very long production run.

Inventory movements. When inventory lot sizes are so small (as just noted), it makes
more sense to place them in very small transport containers and move them to the next
workstation by a conveyor belt. This eliminates a great deal of material handling
personnel and equipment. In addition, management is more likely to move the
workstations closer together, to reduce the amount of travel time on the conveyors. This,
in turn, reduces the amount of work-in-process inventory traveling between the work
stations.

Just-in-time deliveries. A JIT system does not require a massive amount of on-site
inventory. In fact, there may be no on-site inventory at all. Instead, a company requires its
suppliers to submit to a quality certification process (so that it can avoid any time-
consuming receiving inspections), and then has them make a large number of small
deliveries, sometimes directly to wherever the parts are needed in the production process.
This can nearly eliminate a company's investment in raw materials inventory.

Thus, just-in-time inventory control is a set of systems that are designed to squeeze a large
amount of inventory out of a company. The weak spot of inventory control is any possible
fluctuations in just-in-time deliveries; if they are interrupted, then a company has no
inventory buffer, and so must shut down its production operations. Thus, a considerable
amount of supply chain management is needed to make just-in-time inventory control work
properly.

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TOYOTAS JUST-IN-TIME INVENTORY
MANAGEMENT APPROACH
The Toyota Production System fulfils customer demand efficiently and promptly by linking
all production activity to real marketplace demand. Just-in-time production relies on finely
tuned processes in the assembly sequence using only the quantities of items required, only
when they are needed. Imagine a process designed to produce six different types of product,
where the total weekly demand for the range of products varies up and down by 25%, and the
daily mix of product types is continuously changing. A planning challenge, but also a typical
scenario in many types of business in which the process (manufacturing or otherwise) has to
continuously respond to demand. TPS has responded to this reality of life by developing an
approach that can meet the challenge in an efficient, cost-effective way. Just-in-Time
smooth, continuous, optimised workflows TPS pull-system Push-system

HEIJUNKA LEVELLING THE FLOW The term heijunka describes the foundation of
the TPS approach to just-in-time processes ones in which inventory costs are minimised
by having the parts required arrive at their point of use only as they are needed.
Unevenness in workload is known as mura. Heijunka is the elimination of mura by
levelling the volumes to allow a smooth, continuous and efficient flow. It is the opposite
of massproduction series, in which high volumes of a single product are produced, often
significantly unrelated to demand. With heijunka a process is designed to switch products
easily, producing what is needed when it is needed, and relying on production. Any
variations in volumes are accommodated by establishing a level-average demand rate.
The practice of heijunka also eliminates muri overburden or strenuous work that can
also lead to safety and quality problems. Both mura and muri are thought of as types of
muda, or waste, and should be eliminated.
ELIMINATION OF WASTE MUDA Waste defined as anything that does not add
value includes things that might not normally be considered as waste such as
overproduction, holding too great an inventory, the need for rework, and unnecessary
movement, processing and waiting.
TAKT TIME THE HEARTBEAT OF PRODUCTION: Time planning is central to TPS.
Takt is the rate of customer demand essentially, what the market is requiring be
produced. Takt time is the term given to a work-cycle that fulfils each customers
demand. The key is that the work-cycle should be synchronised with demand to avoid

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under- or overproduction. Takt time determines the flow-rate and allows the calculation of
how much work can be accomplished. Optimisation of takt time reduces waste and
inefficiency by eliminating the risk of time delays, or excess production, throughout the
process. Takt time and heijunka mean having the ability to be flexible according to
demand and ensuring the process is smooth, continuous and measurable.
KANBAN CARD: In order to have flexibility and efficient, smooth workflows, it is
necessary to have the right things at the right place at the right time. In TPS it means
having just the right components to build the product. The kanban card is the simple,
highly-visible device that TPS uses to call-up components as they are required. This
means only a minimum stock of components is held in the assembly area. Before stocks
need replenishing, a kanban card instruction from the operator ensures a just-in-time
delivery. The process is based on a pull principle with items called only as they are
required, as opposed to a push principle that may not take account of actual need.

The Relationship Among JIT, TPS & Lean Manufacturing


Systems

FORDS JUST IN TIME MANAGEMENT APPROACH


As we known, lean manufacturing, which also refers as Toyota Production System (TPS), is
created at Toyota. However, the roots of TPS can be found in Henry Fords system of line
assembly and manufacturing process. In the Ford system they manufactured automobiles in

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large quantities of standard designs, which made the system highly efficient, delivering a
product with low cost.

Main idea of the Ford system is the standardized product, which lead to the standard
processes. Training of workers became easily, and anyone can work in the Ford plant within
no time. All workers have their own duty and only need to perform a specific small part of
the full job like tightening a screw or oiling a part. Moving assembly line made it possible to
manufacture in the way Ford expects, like workers had to adapt to the speed of the conveyer.
This will remove the personal element from the production line. The full system was in a
harmonization with the rhythm of the assembly line.

After learning from Ford system, Toyota identified the problem that standard products could
not meet the all customer demands, and then generated the unique Toyota Production System
(TPS). Instead of the Ford push system, Toyota created a unique pull system, which then
became the backbone of lean manufacturing, to avoid overproduction and meet the
diversified customer demands.

Leans fundamental principles developed by Toyota are universally accepted but commonly
adapted to each organization or industry. One example of these transformations is Ford Motor
Company, indicating the Ford Production System.

Ford Production System


In January 1995, Ford initiated Ford 2000 program, which was aim to develop and implement
a new manufacturing system called the Ford Production System (FPS). According to Ford's
website, "The vision of FPS is a lean, flexible and disciplined common production system,
defined by a set of principles and processes, that employs groups of capable and empowered
people, learning and working safely together, in the production and delivery of products that
consistently exceed customers' expectations in quality, cost and time." By implementing FPS,
Ford attempted to transform itself from mass production system to lean manufacturing
system.

The FPS Continuous Improvement Model is the foundation for all manufacturing operations.
It is a ten step process that is aimed at continually improves processes through
standardization and andon recognition. The model looks for creating stability to inputs,

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normalize processes, and seeking change (if necessary) for outputs. The ten FPS Continuous
Improvement Model Processes are:

Continuous Improvement Board

Startup Confirmation

Results Process

Support Process

Time and Data Management

Basic Administration

Kaizen

Standardized Work

Star Points

By utilizing policy deployment, visual management, process confirmation, and time and data
management, FPS will deliver a more aligned and capable organization, which will be
continually improving and ultimately building a better manufacturing environments in the
future. The image below is the revised Manufacturing Umbrella.

AIMS AND OBJECTIVES


The aim and objectives of the study are as follows:

To give an overview about just-in-time inventory.


To look into the just-in-time inventory approaches of Toyota and Ford.
To analyze the impact of just in time inventory on profits of Toyota.
To look into the inventory turnover comparison of various companies in the automobile
sector.

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LITERATURE REVIEW

High
are
(1991)inventory
poor
commonly
(Boute
depicted
control
Japanese
the etmanagement
al.,
technique
as
Auto
developer
management
systematic
which
distribution
when
Wellan, and
claim
production
philosophy
inventory,
improvement
process
as a new
planning,
with
(Canel
Whereas
Gargeya et
disciplined an
minimises
inventory by
needed and
itis
way
andfor
al.,
(2001)
Gyampah
manufacturing holdings
identified
inventory
of
having
points
(Lee
that
aid
and
of and
JIT
aphilosophy
approach JIT
reducing
processasthe
only
and
reduce
thinking,
performing
2000).
method both and
of a
High inventory holdings are commonly identified as poor management (Boute et al.,
productio
2004).

JIT has been depicted as an inventory control technique and the Japanese Auto Industry is
recognized as the developer of JIT inventory and management philosophy. It is a systematic
approach which minimizes inventory by having supplies arrive at production and distribution
points only when needed. Hunglin and Wang (1991) claim that JIT production is a
philosophy for reducing work-in-progress (WIP) inventory, it aid process improvement and
reduce process variability. It can be seen as a new way of thinking, planning, and performing
with respect to manufacturing. Whereas Gyampah and Gargeya (2001) consider JIT
manufacturing both as a philosophy and disciplined method of production.

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A repetitive production system in which processing and movement of material and
goods occurs just as they are needed, usually in small batches: Stevenson

Stevenson (1996) defines the term JIT manufacturing as a repetitive production system in
which processing and movement of material and goods occurs just as they are needed,
usually in small batches. JIT implementing firms have to produce and deliver finished goods
JIT to be sold, sub assemblies JIT to be assembled into finished goods, fabricated parts JIT to
go into the subassemblies and purchased materials JIT to be transformed into fabricated parts.
JIT philosophy is based on the concept of delivering raw materials when needed; producing
products when there is a need, improve quality of product. The fundamental objective of JIT
is to eliminate all waste from the entire supply chain and to improve product continuously.
The core of the JIT philosophy is CI through the elimination of waste. It defines JIT as to
produce instantaneously with perfect quality and minimum waste. JIT in its broader sense is
an approach of achieving perfection in a manufacturing company based on the continuously
elimination of waste. In the narrow sense, JIT refers to the movement of material at the
necessary place at the necessary time (APICS, 1987). It is a disciplined programme for
improving overall productivity and reducing waste. In a JIT environment quality parts in the
right quantity and at the right time are produced, while using a minimum amount of facilities,
machinery and equipment, raw and in-process materials and human resources.

Relationship of JIT with other manufacturing practices: Ahuja and Khamba


JIT production is called by many names like Zero inventory production system, Minimum
inventory production system, Kanban production, Kaizen production, stockless
production, pull through production, and quick response inventory system. It is system
that produces the required items at the time and in the quantities needed .The main aim of
JIT is to produce the parts used for subassemblies JIT, to assemble these parts into
subassemblies JIT, to bring together these subassemblies to form assemblies JIT and
ultimately deliver finished goods JIT, so as to eliminate waste, to maintain quality and to
satisfy customers. The achievement of all these goals is possible if JIT is implemented
along with the other manufacturing techniques. There are a number of manufacturing
techniques and philosophies used by the organisations. The adoption of philosophies such
as JIT, TQM, benchmarking (BM), business process reengineering (BPR) and CI has in
most cases led to operational and strategic gains for manufacturing and service
organisations in particular. JIT is a backbone of lean manufacturing system. For long
people associated JIT only with the process of manufacturing, but in actual practice JIT

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consists of JIT purchasing, JIT manufacturing and JIT selling. Ahuja and Khamba (2008)
have depicted a direct relationship between JIT and lean manufacturing philosophies.it is
also clear that JIT plays a vital role in lean manufacturing.

High
are
as
the commonly
(Bouteinventory
poor
depicted
control
Japanese
Wellan,
(1991)
with
(Canel
Whereas
Gargeya etmanagement
al.,
as
developer
management
systematic
which
inventory and
claim
inventory,
improvement
process
planning,
a newet
disciplined
productio an
technique
Auto
minimises
production
distribution
when by
needed and
itis
way
andfor
Gyampah
al.,
(2001)
manufacturing
philosophy identified
holdings
inventory
of
having
points
(Lee
that
aid
and
of and
JIT
aphilosophy
approach asthe
only
and
JIT
reducing
process
reduce
performing
method thinking,
2000).
both and
of a

RESEARCH METHODOLOGY
Every research has to be conducted according to some procedure which is called as the
methodology of the project. The methodology of my project was done with the help of
secondary data to give an overview about just-in-time inventory and analyze the overall
impact of just in time inventory in the automobile sector. The results are represented
statistically by several graphical representation. Graphs like Column Graphs(Bar shaped)
has been prepared to show the inventory turnover. The main principle of the methodology
was to have a basic idea about just in time inventory along with its effect on companies like
Toyota and Ford.

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ANALYSIS AND INTERPRETATION
1. Impact of just in time inventory on profits:

Toyota Motor Corp., Statement of Financial Position, Inventory

USD $ in millions, translated from JPY

Mar 31, Mar 31, Mar 31,


2015 2014 2013
Finished 11,386 11,262 10,702
goods
Raw 3,343 3,735 4,129
materials

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Work in 2,252 2,507 2,501
process
Supplies 839 895 891
and other
Inventori 17,819 18,399 18,222
es
Source: Based on data from Toyota Motor Corp. Annual Reports

ANNUAL INCOME STATEMENT

Source: Nasdaq,com

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50000

45000

40000

35000

30000

AMOUNT IN DOLLARS'(000) 25000

20000

15000

10000

5000

0
2013 2014 2015

Source: authors recompilation

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2. Inventory turnover comparison of various companies in automobile sector

Source: digitalcommons.uconn.edu

EXPLANATION:

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Inventory turnover for the seven firms in the large manufacturing firm sub-group clearly
differentiated the lean firms from the non-lean firms. The graph shows the firm level analysis
of inventory turnover. Toyota and Ford both have inventory turnovers that are much higher
than the other firms in the sample throughout the 30 year time period. With mean turnovers of
16.28 and 16.98(dollars000) respectively, they are clearly the leanest firms in this sample.
Chrysler, Nissan, and Motors Liquidation Co (formerly General Motors) comprise the
medium group with inventory turnovers of 8.85, 7.15, and 7.32(dollars000) respectively.
Honda and Fiat are the least lean firms with turnovers of 5.64 and 4.08(dollars000)
respectively. It is important to note that there is a drop-off in the ITO for the lean firms after
1992, driven by the decreasing inventory turnover of Toyota. While Toyota has become less
lean over time, it still has a relatively high inventory turnover compared to other firms, and
therefore would still currently be considered lean. Ford on the other hand appeared to become
leaner over time and started out with an ITO that would be considered to be medium. As it is
observed the other measures, Toyota and Ford will be of particular interest since they are
considered to be the most efficient at converting inventories to sales, and therefore should be
more profitable over time. With respect to the recessionary periods, there only appears to be
slight drop-offs in inventory turnover for the medium and lean firms during the three
economic downturns. The inventory turnover for non-lean firms stayed relatively steady
throughout.

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CONCLUSION
The studys aim was to look into the importance of just-in-time inventory in companies like
Toyota and Ford. Though there are a lot of factors that affect the profit of the company,
inventory management is one of the factors that affect the profit in the very initial stage. Just-
in-time inventory helps the company to achieve its goal with minimal wastage and lower
investment. Toyota one of the most successful company in the automobile sector uses just-in-
time inventory and has a particular system of approach to it. The overall analysis of inventory
turnover gives us an idea about the fact that the lean firms (A lean firm understands customer
value and focuses its key processes to continuously increase it. The ultimate goal is to
provide perfect value to the customer through a perfect value creation process that has zero
waste.) use just-in-time inventory and have become more successful than other companies.

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REFERENCES

BOOKS:

Toyota production system: An integrated approach to just-in-time, 4th edition.


Just- in- time quality: A practical approach

WEBSITES:

http://www.investopedia.com/terms/j/jit.asp
http://www.accountingtools.com/questions-and-answers/what-is-just-in-time-inventory-
control.html
https://www.stock-analysis-on.net/NYSE/Company/Toyota-Motor-
Corp/Analysis/Inventory
http://www.gurufocus.com/term/InventoryTurnover/TM/Inventory-Turnover/Toyota-
Motor-Corp
http://digitalcommons.uconn.edu/cgi/viewcontent.cgi?
article=1123&context=srhonors_theses

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