JUST-IN-TIME INVENTORY PROCEDURES Accounting Help

One approach used to drive cost out of the production process is a just-in-time (JIT) manufacturing system. The phrase “just in time” refers to acquiring materials and manufacturing goods only as  to.till customer orders. JIT systems tire sometimes  as dell  because production is totally driven  customer demand ..This contrasts  more traditional slippery systems in which manufacturers simply produce us many goods as possible.

A JIT system is characterized by extremely small or nonexistent inventories of materials. work in process. and finished goods. Materials are’ scheduled to arrive only as needed. and products flow quickly from one production process to the next without having to move into temporary storage facilities. Finished goods in excess of existing customer orders are not produced.

Storing large amounts of inventory can be costly and lead to liquidity problems when cash is tied up in inventory. Should inventory items spoil or become obsolete, the company’s investment is never recovered. One goal of JIT system is to reduce or eliminate costs, associated with storing inventory, most .of which ‘,(do not add value to the product.? JIT is much more than an approach to inventory management. It is a philosophy of eliminating non-value-added activities and increasing product quality throughout the manufacturing process, As discussed previously, the term non-value-added activities refers to those functions, that do not directly increase the worth of a product to a customer. Examples of non-value-added activities include storing direct materials, selling up machinery. and time during which machinery or employees stand idle. Cost savings achieved through the reduction or elimination of non-value-added activities usually do not influence customer satisfaction. Value-added activities, in contrast, do increase the value of the product to the customer. Examples include product design, all manufacturing processes, manufacturing to customer specifications, and convenient channels of distribution.

Jil, Supplier Relationships; and Product Quality, -Perhaps the most important goal of a successful JlT system is to control product costs without sacrificing ,product quality. This, goal is-achieved, in part. by cultivating strong and lasting relationships with a limited number of-select suppliers,It is important to understand that reliable vendor relationships are essential for achieving long-term inequality If the prices charged are not the lowest available. A product’s quality is only as good as its weakest component. Thus, if quality a goal, the
cost of raw materials should not be the determining factor in selecting a supplier. In fact, slightly higher prices may actually result in quality improvement and cost savings in the long run. For instance. once reliable suppliers have demonstrated their ability to consistently deliver quality materials, a JIT manufacturer may reduce-the time devoted to inspecting and testing materials, received Implementing a successful JIT system involves much more than reliable vendor relationships.

To achieve a goal of zero defects, quality must be designed-in and manufactured- in. rather -than achieved by inspecting out defective product at the end of the manufacturing process. Therefore, in aJIT system. products must be designed in a manner that simplifies the manufacturing process and reduces the risk of detects. In addition to product design requirements, the workers in a JJT system must be extremely versatile.Since products are produced only as needed, workers must be.able to ‘shift quickly from the production of one product to another. To do so, they must Learn to perform various tasks. and operate different machines. Many companies have found that this concept of flexible manufacturing increases employee morale. skill, ‘and productivity.

In order to accommodate the demands of flexible manufacturing within a JIT system, an efficient plant Layout is critical. Machines used in sequential order must be located in close proximity to each other in order to achieve a smooth and rapid flow of work-in , process. Since machinery downtime can interrupt the entire production process. Entitlement reliability is also a vital concern, To help ensure reliability. workers in JlT systems ,are often trained to perform preventive continuance« on’ the machinery they use and ruck many routine repairs themselves.”

Measures of Efficiency in a JIT System .

Timing is of critical importance in a Jr system. Therefore,time measurements are essential for scheduling production activities in a manner that avoids bottlenecks and ensure that jobs are completed “just in time.” The length of time required for a product·to pass completely through a manufacturing process is called the cycle time. The cycle ti~e is of tell viewed as containing four separate elements: (I) processing time, (2) storage and waiting time, (3) movement time, and (4) inspection time. Only during processing time. however, is value added to the product. Ideally, the other elements of a product’s cycle time should be reduced’ as much ·as possible A widely used measure of efficiency in a JIT system is the manufacturing efficiency’ ratio (or throughput ratio). This measure expresses the time-spent in value-added activities (processing activities) as a percentage of total cycle time. The ratio is calculated as follows:

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Posted on November 23, 2015 in Costing and- the Value Chain

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