Just in Time (JIT)

We are all aware of JIT manufacturing (e.g. Dell Computers among many others) however a recent emergence is JIT information (e.g. the ability to get information on a mobile phone or via a Web Service just when we need it.  The text does not provide sufficient information on this topic so I present the following.

JIT can trace its roots to Japanese companies following World War II. These postwar Japanese manufacturers had limited finances and therefore could not purchase large amounts of raw materials or maintain large finished goods inventories (Albright & Lam, 2006).  In response to this constraint, Japanese companies evolved to produce on demand rather than producing inventory to meet market forecasts.  This is particularly relevant to today’s transitory business environment and its rapidly evolving technology base citing that JIT processes can remain more agile and mitigate the likelihood of inventory and technology obsolescence.  Equally important, JIT can quickly respond to customer needs and therefore provides an enhanced customer intimacy and Customer Service Management (CSM) (Garrison, Noreen & Brewer, 2008).  To this extent, most US companies now believe JIT is vital to their survival (Hobbs, 2007).

JIT also known as lean production represents a dramatic shift to traditional inventory based business processes.  Conceptually, the move to from inventory based systems to JIT represents a shift from a push philosophy to a pull philosophy where raw materials are ordered to meet identified demand rather than projected forecasts (Garrison, Noreen & Brewer, 2008; Pearlson & Saunders, 2006; Satinger, Jackson & Byrd, 2002). From a managerial accounting perspective, JIT results in smaller raw materials and finished goods inventories that free up finances.

Maintaining smaller inventories requires more complex planning to manage resource acquisition and equipment setup costs (Garrison, Noreen, & Brewer, 2006). With this basis, managing the supply chain becomes critical and failure to effectively manage the supply chain can introduce delays that debilitate organizational efficiency and agility.   In accord with this paper’s purpose, JIT increases a manager’s reliance on managerial accounting information as managers are ultimately responsible for resource allocation and organizational efficiency (Garrison, Noreen, & Brewer, 2006; Hobbs, 2007; Robbins & Judge, 2007).  Fortunately emergent Web technologies have facilitated JIT by providing a common computing and information representation platform.  This emergent computing functionality supports an organization’s agility and JIT processes as managers can quickly locate, assess, order and track resources and processes.

As introduced above, JIT can significantly improve manufacturing performance however JIT also introduces other problems not previously encountered in traditional processes (Albright & Lam, 2006; Garrison, Noreen, & Brewer, 2006; Hobbs, 1997).  Post-war Japanese manufacturers quickly learned one of the shortcomings of JIT was quality control as process errors (e.g. setup times) or product defects incurred greater damage than predecessor inventory based manufacturing processes.  To mitigate the number of product defects, the Japanese committed to quality by forming small teams presently known as production cells, manufacturing cells or focused factories that work on a product until it was complete (Albright & Lam, 2006; Garrison, Noreen & Brewer, 2008; Hobbs, 2007).   Working in small teams through project completion reduces in-process inventory and its associated storage and maintenance costs while concomitantly reducing direct and indirect labor costs of 10% to 25% (Hobbs, 1997).  JIT production cells have also been shown to be more effective as they respond quicker to customer demands further enhancing CSM (Hobbs, 1997).

Interestingly, small teams working on a project until completion increases a sense of product ownership and employee empowerment that further reduces the incidence of product defects and leads to superior organizational commitment (OC) and organizational citizenship behavior (OCB) (Hobbs, 1997).  It has been shown that OC and OCB can improve productivity and reflexively the quality of conformance necessary for effective JIT (Garrison, Noreen & Brewer, 2008; Robbins & Judge, 2007).  OC and OCB have also been shown to be critical components of holistic marketing (Kotler & Keller, 2007).  With this basis it is intuitive that effective JIT implementation is consistent with Total Quality Management (TQM) tenets and can lead to a cycle of Continuing Improvement (CI).  Central to effective JIT is a reliance on available and comparable managerial accounting information.

Theory of Constraints (TOC)

The basic premise of TOC is to identify constraints or bottlenecks in a process and improve them.  This results in maximizing throughput through the constraint and therefore improves the entire process.  TOC was originally developed as a shop floor management technique however after demonstrating its success and merit, its scope was broadened and applied to all processes (Hobbs, 1997).  TOC can be thought of as a recurrent four step process that: (a) identifies the weakest link or greatest constraint, (b) maximizes throughput through this link, (c) maximizes other processes related to the weakest link so that the weakest link can perform optimally and, (d) upon completion, proceeds to identify the next weakest link to begin the cycle again (Garrison, Noreen & Brewer, 2008).  While TOC seeks to improve throughput by identifying and improving a constraint it must be noted that this can also drive processes in other areas as a constraint point should never have nothing to process.  Minimizing idle time at a constraint point requires the prompt delivery and availability of resources as well as establishing backup plans consistent with JIT tenets.

Similar to JIT, TOC strives for TQM and continuous improvement (CI) by involving all employees.  This organic approach has become a central theme in TQM, holistic marketing and Organization Behavior and it has been argued this employee empowerment and innovation provides a significant competitive advantage (Garrison, Noreen & Brewer, 2008; Kotler & Keller, 2007; Pearlson & Saunders, 2007; Robbins & Judge, 2007; Wynder, 2008).   It is implicit that successful application of TOC requires accurate and relevant accounting information as this serves as the foundation for organizational planning, direction and control.


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