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Just-In-Time (JIT)

Method: Definition and


Objectives
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Just-In-Time (JIT) Method: Definition and


Objectives (With Example)!
Definition of Just-In-Time (JIT) Method:
Just-In-Time (JIT) is a purchasing and inventory control
method in which materials are obtained just-in-time for
production to provide finished goods just-in-time for
sale. JIT is a demand-pull system. Demand for customer
output (not plans for using input resources) triggers
production. Production activities are pulled not
pushed into action.

As philosophy, JIT targets inventory as an evil presence


that obscures problems that should be solved, and
declares that, by contributing significantly to casts, target
inventories keep a company from being as competitive or
profitable as it otherwise might be.

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A just-in-time manufacturing system requires making


goods or service only when the customer, internal or
external, requires it. JIT requires better coordination
with suppliers so that materials arrive immediately prior
to their use. It reduces or eliminates inventory and the
costs associated with carrying the inventory. It
emphasises that workers immediately correct the system
making defective units because they have no inventory.

With no inventory to draw from for delivery to


customers, just-in-time relies on high quality materials
and production. It is required that the companies that
use just-in-time manufacturing must eliminate all the
sources of failure in the system. Production people must
be better trained so that they can carry out their works
without errors. Suppliers must be able to produce and
deliver defect free materials or components just when
they are required, and equipment must be maintained so
that machine failures are eliminated.
Objectives of Just-In-Time (JIT) Method:
JIT aims to achieve the following objectives:
(i) Zero inventory

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(ii) Zero breakdowns

(iii) 100% on time delivery service

(iv) Elimination of non-value added activities

(v) Zero defects.

The major differences between JIT


manufacturing and traditional manufacturing
are as follows:
JIT applies to raw materials inventory as well as to work-
in-process inventory. The goals are that both raw
materials and work in process inventory are held to
absolute minimums. JIT is used to complement other
materials planning and control tools, such as EOQ and
safety stock levels. In JIT system, production of an item
does not commence until the organisation receives an
order.

When an order is received for a finished product,


productions people give orders for raw materials. As
soon as production is complete to fill the order,
production ends. In theory, in JIT, there is no need for
inventories because no production takes place until the
organisation knows that it will sell them. In practice,
however, companies using just-in-time inventory
generally have a backlog of orders or stable demand for
their products to assure continued production.

The fundamental objective of JIT is to produce and


deliver what is needed, when it is needed, at all stages of
the production process-just-in-time to be fabricated,
sub-assembled, assembled, and dispatched to the
customer. Although in practice there are no such perfect
plants, JIT is an ideal and therefore a worthy goal.

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The benefits are low inventory, high manufacturing cycle


rates, high output per employee, minimum floor space
requirements, minimum indirect labour, and perfect in-
process control. An associated requirement of a
successful JIT operation is the pursuit of perfect quality
in order to reduce, to an absolute minimum, delays
caused by defective product units.

Example:
Godrej Manufacturing has developed value-added
standards for its activities among which are the following
three: materials usage, purchasing, and inspecting.

The value-added output levels for each of the


activities, their actual levels achieved, and the
standard prices are as follows:
Assume that material usage and purchasing costs
correspond to flexible resources (acquired as needed)
and inspection uses resources that are acquired in
blocks, or steps, of 2,000 hours. The actual prices paid
for the inputs equal the standard prices.

Required:
1. Assume that continuous improvement efforts reduce
the demand for inspection by 30 percent during the year
(actual activity usage drops by 30 percent). Calculate the
activity volume and unused capacity variances for the
inspection activity. Explain their meaning. Also, explain
why there is no activity volume or unused capacity
variance for the other two activities.

2. Prepare a cost report that details value-added and


non-value-added costs.

3. Suppose that the company wants to reduce all non-


value-added costs by 30 percent in the coming year.
Prepare kaizen standards that cap be used to evaluate the
companys progress toward this goal. How much will this
save in resource spending?

4. Suppose that Godrej Manufacturing has implemented


the Balanced Scorecard. Explain how non-value-added
cost reduction, non-value-added cost reports, and kaizen
standards might fit into the Balanced Scorecard
framework.
There is no reduction in resource spending for inspecting
because it must be purchased In increments of 2,000
and only 1,200 hours were savedanother 800 hours
must be reduced before any reduction in resource
spending is possible. The unused capacity variance must
reach Rs 2, 40,000 before resource spending can be
reduced.

4. The Balanced Scorecard has four perspectives:


financial, customer, process, and learning and growth.
One of the objectives of the financial perspective is
reducing the unit costs of products. Reducing non-value-
added costs should produce a reduction in the companys
product costs. But the most direct connection to the
Balanced Scorecard is with the internal process
perspective of the Balanced Scorecard. Value- and non-
value-added cost reports are financial measures that
relate to internal process efficiency.

Similarly, kaizen standards deal with improving internal


process efficiency. Activity volume variances and unused
capacity measures also are concerned with process
efficiency. Finally, the value of the Balanced Scorecard
relative to these measures is that the Balanced Scorecard
will integrate these measures into the overall strategic
framework.
The learning and growth perspective provides the
enabling factors needed to reduce non-value-added
costs. What good are non-value-added cost reports if
nobody has the capability of finding ways to improve
activities and processes? As process efficiency increases
and costs are reduced, then customer value can be
increased by reducing prices. As customer value
increases, market share may increase, and this, in turn,
may increase revenues and profits.

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