Managerial Accounting

Effects of Just In Time Inventory

Introduction

In the world of business where every participant should be competitive and cost-productive , business organizations formulate and adopt strategies , practices and principles that will help the business cut cost , improve the management system and eliminate waste and non-value added activities . Also , because of the rapid changes in technology , most products today have a shorter life cycle , thus there is an increasing need to have amore responsive system . Companies have found success on such principles that even non-business organizations like the military have adopted

them . One of these principles and practices that started in the business world is the just-in-time system

Just in time (JIT ) system , also known as lean manufacturing system in most manufacturing industry is a principle which is said to be first practiced by the Japanese car manufacturer Toyota followed by other Japanese manufacturers , providing them the ability to compete with the American manufacturers . There are also some literatures saying that the concept was originally developed at the Ford Motors . JIT system started to be popular in the 1980s as part of the Japanese management system founded on the kanban system , the idea of ing the materials only when it is already needed and producing only the exact quantity of goods needed by the customer on the time when it was exactly needed

Hall (1983 ) defines JIT as referring to the movement or transport or delivery of materials to have only the necessary materials at the necessary place at the necessary time . In other words , just in time system is composed of just in time delivery and just in time production The system is considered to be the most efficient manufacturing system today being practice by Dell Computer , Honda Cars , Boeing and Pratt Whitney to name a few

The JIT system has gained popularity and acceptance in the manufacturing industry due to the benefits it can provide including inventory reduction , quality improvement and prompt delivery of the products (Cook and Rogowski , 1996 Hobbs , 1994 and Payne , 1993 . Other important benefits gained from JIT are : reduction of lead times increased productivity , flexibility of both the workers and management increased equipment utilization , reduced scrap and rework , elimination of the need for a large warehouse , reduction of scrap and rework , and formation of partnership and good relationship with suppliers who became more committed with the customer because of the JIT system

These benefits are gained from the implementation of the JIT system which is primary focused on the elimination of waste and respect for people , according to Hobbs (1994 ) and Payne (1993 . Gargeya and Thompson (1994 ) added that through the JIT system , waste elimination is achieved by adopting practices such as reduced set-up times , flexible resources , group technology layout , pull production system and effective use of technology : the elements needed to implement the JIT system effectively

JIT system also requires respect for people by employee training , team work , competitive compensation , and employee participation , and good attitude towards supplier (Gargeya and Thompson , 1994 ) in...