Toyota is one of the most widely respected companies in the world. They are known for their focus on quality, reliability and efficiency. Anybody who has been to business school has certainly read one or more case studies on this incredible company. One of the Toyota processes that was likely studied was “Just In Time Inventory”.
The concept behind Just In Time Inventory is that as part of their manufacturing process, Toyota keeps a very low inventory of parts, and only orders/recieves parts as they are needed.
From a business standpoint, there are three prominent advantages to Just In Time:
- This allows Toyota to keep less of their money tied up in inventory.
- It requires far less warehouse space to store extra inventory.
- They can change parts and suppliers more quickly.
Since Toyota started this practice decades ago, it has now become common place for many businesses across the world. When implemented with the right supply chain, it has proven to be an effective method, allowing an organization manage it’s capital (resources) better.
Just In Time – At Home?
I remember reading about Just In Time at business school and then thinking, “why don’t people do this at home?”
The whole concept goes counter to everything you read about saving money by buying items in bulk at places like Costco. Why buy one month’s supply of toilet paper, when you can save 10% by purchasing 6 months supply at once?
However, it seemed to me that if Just In Time works for businesses, it should work for personal lives too.
Just like a business, most of us have limited space for items in our homes. We also have plenty of productive places to put our money, either investments or paying off debts.
So does it make sense to stop buying in bulk, and only purchase items as you need them?
Benefits of Not Buying In Bulk
Since learning about the benefits of NOT buying in bulk, I can honestly say that I actively avoid buying most items in bulk. Below are the four main benefits I’ve found:
Buying In Bulk Is Expensive – Making bulk purchases requires that you have money available to make a larger purchase. Any Costco member will tell you how easy it is to pay a few hundred dollars every time you visit the store. When running a budget, a bulk purchase of one item can squeeze out room for other important budget categories.
Opportunity Cost of Money – Building off of the expensive nature of bulk purchases, you need to ask yourself, “Is there something better your money can be doing instead of going into bulk purchases?” Sure you can save 10% by purchasing toilet paper in bulk, but what about the debt you have? Or what if you upped your retirement investing? Taking the extra money from purchasing smaller quantities and putting it to a more productive use can negate any savings from bulk purchasing.
Needs Change – If you are not 100% certain that you will need an item in the future, or if you enjoy the item that you are purchasing in bulk, it’s very possible that your needs change before you run out of the supply. In this case, not only are you wasting money on the items you will not use, but you are also creating unnecessary trash as well.
More Space – For many items, buying in bulk requires you have additional space to store the products. Just as extra space costs money for a business, additional space in your home is expensive as well. Paying less on rent or a smaller mortgage, by utilizing less space, can have a positive impact on your financial health.