PREPARED BY:

Group - ASTRA

Accounting & Information Systems FBS | UNIVERSITY OF DHAKA

Report COST ACCOINTING – II [3201]

PREPARED FOR:

Md. Ahasan Uddin

Lecturer, dept. of AIS DU

The prerequisites for JIT applicability & its effects

(with reference to BAT BD).

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GROUP LIST.

Group name: ASTRA

Section: C

AIS 19th batch, DU

Group members:

19-172 Khairum Maksuda Hoque Adeeba

19-174 Md. Noman Sarkar

19-179 Nazmul Hauque

19-180 Syeda Fatema - Tuj - Juma

19-182 Rabbi-Al-Sifat

19-255 Md. Hammadur Rahman

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12th December, 2015

Md. Ahasan Uddin

Lecturer, dept. of AIS, DU

Subject: Report submission

Sir,

We due respect we, the group ‘ASTRA’, are delighted to submit report on “The prerequisites for

JIT applicability & its effects (with reference to BAT BD).”

Hope you like it.

Group name: ASTRA

Section: C

AIS 19th batch, DU

Group members:

19-172 Khairum Maksuda Hoque Adeeba

19-174 Md. Noman Sarkar

19-179 Nazmul Hauque

19-180 Syeda Fatema - Tuj - Juma

19-182 Rabbi-Al-Sifat

19-255 Md. Hammadur Rahman

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Prerequisites for JIT applicability & its

effects (with reference to BAT BD).

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ABSTRACT

In today’s highly competitive work environment, companies have to find ways to be able to

compete effectively with their competitors. They have to find ways to reduce cost, improve quality,

and increase customer satisfaction. Just-In-Time production system is among the tools that

companies can use to become competitive. The implementation of Just-In-Time manufacturing

system will provide companies with competitive advantage; however the system requires

companies to change radically. Cost accounting is among the areas that are affected by the

implementation of Just-in-Time production system. The aim of this paper is to discuss the effects

of Just-in-Time production system from cost and management accounting perspective.

Key words: Just In Time, cost accounting, accounting change, new manufacturing environment.

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Contents Introduction .................................................................................................................................................. 6

Purpose of study .......................................................................................................................................... 6

Scope ............................................................................................................................................................ 6

Methodology of study .................................................................................................................................. 7

Literature Review .......................................................................................................................................... 7

JIT Production System .................................................................................................................................. 8

Prerequisites of JIT implementation ............................................................................................................ 9

A. Long-Lasting, Reliable Relationships with suppliers: ..................................................................... 9

B. Introducing Pull Method: ................................................................................................................ 10

C. Standardized Work Concepts: ........................................................................................................ 10

D. Ensuring the core level of Commitment of Top and Middle Managers: .................................. 11

E. Creating a systematic work environment: ..................................................................................... 12

F. Fast and Economical Machine Setups ............................................................................................ 12

G. High-quality finished products ...................................................................................................... 12

H. Flexible Facilities and Multi- Skilled Workers ............................................................................... 13

I. Performance measures should be reported to workers in JIT environment: ............................. 14

The Effects of JIT: ........................................................................................................................................ 14

A. the Effect of JIT on cost reduction & efficiency: .......................................................................... 14

B. The Effect of JIT on the Cost Structures and Costing Procedures:............................................. 15

C. The Effect of JIT on Performance Measurement System: ........................................................... 16

Reference of BAT BD for a closer practical look to “JIT” .......................................................................... 17

Why BAT has chosen JIT ...................................................................................................................... 18

How it works in BAT: ............................................................................................................................ 18

The effects of JIT on BAT ..................................................................................................................... 18

Summary & Conclusion ............................................................................................................................. 19

References .................................................................................................................................................. 20

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Introduction

Companies always try to find ways to be able become competitive. Just-in-Time (JIT) production

system has been used as a response to increasing competition. Today JIT system is well known

throughout the world.

The reason why the system is so popular today is a result of its advantages realized by the

manufacturing companies. For instance, the use of JIT production system leads to better

production quality, less inventory, and shorter product lead times. The use of JIT production

system, therefore, increases customer satisfaction by providing them with high-quality product

on time. But these gains require some changes. When a company implements JIT production

system, major physical, psychological, and organizational changes occur in the organization’s

work environment. The company implementing JIT production system develops closer

relationships with suppliers; significantly reduces its inventories; and implements simplified

manufacturing procedures. The JIT concept also helps reduce the number and type of the

accounts used in journal and ledger entries. The concept simplifies accounting records and

reduces accounting costs.

The purpose of this paper is to discuss the perquisite factors that must be present to implement

JIT system.

Purpose of study In the face of current economic crunch, companies are looking for the ways to cope with the

situation by opting for cost reduction and quality products at the same time. Referring back to

Japanese manufacturing success in 1980s, companies find the just-in-time (JIT) inventory

management system is one of most popular ways to have lower cost and high quality products.

JIT is an operations concept, which focuses on meeting the demand while offering the perfect

quality and zero waste. Our work on this topic will help us exploring modern business arena.

Scope We will stream best possible contents on internet and books regarding JIT to enrich our theoretical

understanding. For practical implications we will analyse some cases on JIT. To take our

understanding a step ahead we will work with a business organization which uses JIT system.

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Methodology of study

1. Conducting a literature review on the application JIT.

2. Solving some cases of JIT.

3. Going through some research papers.

4. Interview BATBD employees on JIT.

5. Reviewing BADBD’s allowable documents on JIT & its application.

Literature Review

There is reasonable consensus among researchers that just in time (JIT) is a philosophy of

continuous improvement in which non-value adding activities are identified and removed in order

to reduce costs, improve product quality, improve performance, improve delivery, add

manufacturing flexibility and stimulate innovation in the workplace [2-6]. Numerous organizations

have reported cost cutting and improved quality due to JIT practices [6]. JIT was a technology that

permitted many firms to compete successfully in the face of growing competition [1, 4]. Wallace

defined JIT as an approach to achieving excellence in a manufacturing company based on

continuing elimination of waste and consistent improvement in productivity. Continuous

monitoring of production processes with the goal of eliminating all forms of waste is a key point

in understanding JIT [2, 6]. American Production and Inventory Control Society (APICS) defined JIT

as a philosophy of manufacturing based on a management plan that identifies and then eliminates

all waste and emphasizes continuous improvement in plant productivity. JIT provides

authorization for single parts that arrive just in time to be consumed, resulting in stockless

production and significant cost savings [3,5] Research has shown that JIT organizational

philosophy has the potential to increase organizational efficiency and effectiveness [1,2,3,4,5,6].

On the other hand, if JIT is not properly implemented, desirable benefits are not realized [4, 6]. In

theory, it is easy to understand the concepts of JIT in terms of eliminating waste and improving

productivity. But, in reality, the concepts are difficult to implement because of the need for

fundamental organizational changes.

Operationally, JIT production requires that waste be identified and eliminated in the following

areas: waste from overproduction, waste created by waiting or idle time, waste of motion,

transportation waste, inventory waste, processing waste and waste from product defects [1, 3].

The essentials required for a successful JIT production facility are, first, the minimization of

inventory in supply chains. Efficiencies are gained from frequent deliveries of small quantities to

meet immediate demand [1, 5]. There must be an employee participation and involvement

strategy in place to encourage worker input, which aids in the elimination of waste [6]. In addition,

the immediate awareness of quality causes workers to generate ideas for controlling defects and

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ideas for improving JIT delivery (i.e. more convenient workspaces). Perhaps more importantly,

workers hold the authority to stop the line when problems are identified, and so it is critical for

the success of JIT to train and motivate the workforce [3, 5, 4]. When JIT principles are

implemented successfully across many parts of an organization, a significant competitive

advantage can be enjoyed. Enhanced efficiency from waste reductions in order taking, purchasing,

operations, distribution, sales and accounting, [1-6]. Some other benefits of JIT as cited in the

literature

a. Elimination of waste in production and materials [4, 5]

b. Improving communication internally (within organization) and externally (between the

organization and its customers and vendors) [6].

c. Reducing purchasing costs which is a major cost to most organizations [1, 3, 5, and 6].

d. Reducing lead-time, decreasing throughput time, improving production quality, increasing

productivity and enhancing customer responsiveness [6]

e. Foster organizational discipline and managerial involvement [18]

f. Integration of the different functional areas in the organization. It especially bridges the gap

between production and accounting [2]

The JIT benefits do not just happen. Before an organization enjoys the fruits of JIT, it must accept

JIT as an organizational philosophy. This requires the organization to change or modify its

operating procedures, production system and organizational structure.

JIT Production System

JIT production system is a system that enables companies to produce products in required

amounts and just when demanded. By using the system, companies intend to offer products on

time. If companies finish final products on time, they will be able to minimize the raw material,

work-in-process and finished-goods inventories. How these reductions can be achieved may be

described as follows: raw materials are purchased when needed for production, work-in-process

inventories are not produced until they are needed by the coming production process, and

finished products are offered to customers immediately after they are produced. In other words,

in JIT setting demand triggers each step of the production process: starting with a customer

demand for a finished product at the end of the process and working all the way back to the

demand for direct material at the beginning of the process. When customers order a party of

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products, they will not wait very long to receive their orders, because these products can be

produced in a very short period of time under a JIT setting. This means that, lead-time is very

short. In addition, as products are produced without any stoppage, there will be no wasted time

spent for inspecting and correcting the defective products. Thus, products can be ready to deliver

on time.

Application of JIT will lead to a decrease in inventories, waste reduction, employee involvement

and customer satisfaction. Therefore, employing the system will cause a company to save money

and increase the number of the customers. In short, use of JIT production system will eliminate

waste.

Prerequisites of JIT implementation

A JIT production aims at minimizing work-in-process and finished-goods inventories, reducing

lead-time, and increasing product quality. In order to achieve these by implementing a JIT

manufacturing system, there are some aspects and steps that should be put into consideration

and then operation.

A. Long-Lasting, Reliable Relationships with suppliers: Any company demanding to establish JIT production system, supplier must be able to provide

high-quality raw materials, because in JIT setting there is no allowance for the stoppage

resulting from poor-quality work-in-process inventory. If raw materials offered by the supplier

are defective, there will be problems in the production process due to poor-quality raw

materials. In case of any stoppage, company will not be able to offer the product to customers

on time. In other words, lead-time will be longer. Therefore, successful JIT production depends

largely on assembling a few long lasting cooperative and reliable suppliers. Just-in-Time

purchasing is the purchase of goods and materials such that delivery immediately precedes

demand for use of Manufacturers implementing this system tend to make vigorous assessments

of potential suppliers. Therefore, companies implementing JIT production system should make

careful evaluation of suppliers while selecting the best one. In evaluating the suppliers, following

characteristics must be considered in order to decide on:

• If the supplier is ability to provide high levels of quality;

• The supplier’s ability of making frequent deliveries of small lots;

• How strong the supplier’s capability for continuous improvement;

• If the supplier is financially stable;

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• Most importantly the price to ensure that supplier provides high-quality raw materials,

long-term and reliable relationships must be established with few suppliers

Moreover the JIT production system focuses on producing products in small lots frequently.

Therefore, the supplier must be able to make frequent deliveries of raw materials in small lots

otherwise production will not be done in a way that will enable the company to offer the product

on time.

B. Introducing Pull Method:

Practically final products are produced only when they are demanded. Operators in such case will

not put materials and components into production unless they are required. Therefore, parts and

components that are produced by any operator should not be produced until the next operator

demands them. Production centers begin to produce the parts required by the following divisions

when customer demands the product in sequence. Under the pull method, goods are produced

in each manufacturing stage only as they are needed. Pull system differs from a push system in

that operators produce according to schedule or material availability. Instead, production does

not begin until parts are needed by the downstream operator. Often this message is in the form

of withdrawal Kanban, a card that describes a part number, a quantity of parts, where parts are

from, where the parts are to be delivered. That system can be compared to a system that takes

place in the supermarket. Naturally when a customer wants to buy something, he/she pulls the

good from the shelves. When the stock clerk realized the resulting empty shelves he/she receives

the signal to replenish what has been sold. Therefore, Kanban system restocks what has been

purchased rather than using a system of estimated replenishments. In this case, there is no

allowance for the pile-up of work-in-process inventory through the production process because

materials are not produced unless needed by a downstream operator.

C. Standardized Work Concepts:

Standardization is achieved when all the tasks necessary to perform the production process are

made with uniformity. In other words, if the same tasks are performed every time a process is

carried out, it means that the production process is standardized. Once the procedure is

standardized, there will be no variation in the process. Therefore, a work procedure must have the

defined & distinct every detail as clearly as possible. Otherwise, no operator will perform the task

in a way he is supposed to. Also, if the work procedure is made clear, the worker will make high-

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quality parts with less variation. Then the workers are able to finish products in shorter time

because work is done in a standard sequential way. Also, if the procedure is standardized, the

worker does not face any confusion because there is a known and fixed way of performing the

job. As a result any worker can carry out the task. This helps managers substitute the absent

operator with the existing one to perform the task in case of employee absence. Therefore,

possibility of delay caused by the absence of the operators is eliminated and products can be

produced in the planned way. On the other hand, unless the working procedure is standardized

different sequence of activities will be followed every time when the product is produced. This

may cause products not being offered on time because of the confusion caused by random

production procedures.

D. Ensuring the core level of Commitment of Top and Middle

Managers:

Since a JIT production system themselves will not be initiated by top managers, their support must

be ensured. More on that JIT may affect all parts of the organization there must be a high level of

cooperation among functional & operational areas. That is why, middle managers’ commitment

should also be ensured. Introduction of JIT procedures into the production environment is usually

made by a firm’s top management. Once this decision is made, the next step toward

implementation is to gain an active support from the firm’s middle managers and supervisors.

Getting this support may not be very easy because these managers could be reluctant to support

the implementation of JIT production system. Possible changes in production process, control

procedures and performance measurement that would be required by the implementation of JIT

may discourage middle managers from actively participating in the implementation of the system.

In a JIT environment, everything must be perfect; there is no allowance for defective products and

production errors because there must be no delay caused by those kinds of activities. These strict

requirements brought by the JIT production system may discourage managers from voluntarily

participating in the implementation of the system.. As a result, they may be reluctant to support

the implementation of JIT concept. However, it is difficult to implement JIT production system

without the support of middle managers and supervisors. Therefore, the motivation of middle

managers and supervisors to support the implementation of JIT procedures is exceedingly

important concept if this production system is to be implemented. In other words, managers must

be motivated to participate in the implementation of the system. For this reason, some researchers

have conducted research about the motivation of managers in implementing JIT production

system. For example, according to a research conducted by Lynn and Adrian (1991) about the

examination of managers’ motivation to implement JIT procedures; rewards associated with

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increased productivity in the new work environment, employment security which would be

brought by the new manufacturing system, more challenging production standards and output

goals associated with the JIT environment are the most attractive outcomes of implementing JIT

production system. In fact management accountants who advise senior executives regarding

appropriate incentives for motivating the implementation of JIT procedures might advise properly

those productivity rewards and employment security results for the implementation.

E. Creating a systematic work environment:

The JIT production flow requires being smooth. In other words production has to be done in a

consistent way, without any variation. At the same time Work in process needs to be moved

smoothly in the production area because it’s expected to be completed just in time. In this sense,

tools used in production should be put in order, machinery and the work place should be clean.

In a JIT environment, materials move through the factory very rapidly in response to signals from

the pull control system. Therefore, the work environment should be structured in a way that allows

the movement of materials without any trouble. Also, the workers should be able to reach the

tools and other materials easily in the shortest time available. If work place is clean and tidy, and

everything is in order, then there will be no chance for the occurrence of delay because tasks can

be performed without any waste of time.

F. Fast and Economical Machine Setups

As company applies JIT aiming at producing in small lots when demanded, operators should be

able to setup the machinery in a very short time so that they don’t have to waste time while

switching from one lot to another. Manufacturing facilities must be able to produce different kinds

of products without any delay. Therefore, JIT production system must be based on advanced

computer-controlled machines that are able to produce several product types without requiring

a set-up.

G. High-quality finished products

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In a JIT production system, finished-goods inventory is kept at minimum level. A total quality

control program should be applied in the JIT setting. In this case, everybody should be responsible

for the quality of the final product. So, everybody in the organization should pursue ways to

continuously expand the production system. In traditional systems, inventories are pushed

through the system undergoing quality inspections conducted by quality control personnel,

whereas in a JIT setting teams are responsible for production and quality. An important

characteristic of this production system is that once defective parts are discovered, production

stops until the root cause of the problem is identified and solved. Otherwise, production in the

upstream operation also stops because there is no pull from the producer of the defective part.

In a JIT environment, everybody focuses on continuous improvement in order to prevent problems

from taking place, and shutting down the production line that may then cause delay in offering

the product on time. One division should provide the coming division with defect-free Work-in-

process so that there will be no rework and wasted time through the production process. Effective

quality-control programs also help minimize work-in-process inventories because there is no

need to establish huge buffer inventories to prevent the plant from disruptions that would be

caused by poor quality.

H. Flexible Facilities and Multi- Skilled Workers

Facilities in a JIT setting must be flexible so that they can produce various kinds of products

without requiring frequent setups. As the system (JIT) aims at producing small lots of different

kinds, facilities must be able to produce different kinds in small lots. Multi-skilled workers are also

required in this environment to respond quickly to changes in demand and product mix. In

addition to these, in a JIT setting workers must have multiple skills because in case of absence of

an employee, one of the others must replace him in order to finished production on time. The JIT

production system, therefore, requires highly skilled and highly dedicated workers and well

preserved equipment.

Furthermore, one of the first steps that a company must take while implementing a JIT production

system is to establish work cells. In a JIT environment, products are grouped into cells, and workers

are assigned to these cells with each employee performing several functions. In the work cells,

similar machines are grouped together to produce similar products. In these cells operations are

moved together so that unnecessary and time-wasting transportation of parts between functional

departments is disregarded. As products can be produced in manufacturing cells in a short period

of time without any stoppage, there is no allowance for the pile-up of work-in-process inventory.

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When a JIT production system is implemented successfully, high productivity, high quality, shorter

lead-time, and low levels of raw material and work-in-process inventories will be achieved with

time and greater flexibility. Therefore, although reduction in inventories is the most significant

benefit, quality improvement, shorter lead-time, and greater flexibility can also be realized

outcomes of the JIT implementation.

I. Performance measures should be reported to workers in JIT

environment:

As workers are involved in cell, they are required to do different tasks to ensure low defect,

efficient manufacturing process and product quality. They are encouraged to be more flexible and

active by not assigning highly programmed tasks. To identify problem and opportunities they are

provided with feedback in the form of performance measures. It ensures high level of employee

involvement that is crucial for implementation and running of a JIT system. Implementation of JIT

and the reporting of a performance measure has a positive relationship

The Effects of JIT:

JIT production aims at minimizing work-in-process and finished-goods inventories, reducing lead-

time, and increasing product quality. There are some effects of JIT as discussed below:

A. the Effect of JIT on cost reduction & efficiency:

JIT can reduce cost in production by eliminating non-value added activities and non-value added

cost. On value added activities are those such as storing material, parts and finished goods,

moving materials and parts from one place to another, setting up a machine, inspection, rework

and purchasing that consume resources but add no value. These are explained in below sections:

Minimizing storing activity:

As raw materials are supplied close to the production time and ship to the customer immediately

which ensures a minimum storage cost. Also work-in-process inventory can be reduced through

quality improvement.

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Reducing the cost of inspection & order placement:

In JIT, the most important thing is to establish a long lasting reliable relationship with dependable

Supplier. As supplier provides defect free materials it will ensure quality and reduce the cost of

inspection. On the other hand, the company deals with particular suppliers, it reduces the

purchasing and ordering related costs.

Minimizing moving and set up activity:

In JIT, machine used in producing similar products are grouped together into production cell. As

machines are set close together W-I-P need not to move long distance, reduce moving costs. It

also minimize set up activity.

Minimizing rework activity:

IN JIT, quality product is provided by the supplier. When effective material is found the operator

pause the process. As number of defective units are reduced, it requires minimum number of

employer for inspection and rework.

B. The Effect of JIT on the Cost Structures and Costing Procedures:

In JIT systems production process is largely depend on machinery as a result in this process direct

labor decrease but factory overhead increase. In JIT system factory overhead cost can be flexibly

allocated in the first level. Here indirect labor cost is also decrease because of operator.

Accounting treat process is different in JIT system from traditional accounting system. In

traditional accounting system several separate inventory account be used but in JIT system

number of journal entry is reduced.

Under a JIT setting, actual factory overhead and labor costs are combined and transferred to an

account called Conversion Costs instead of work-in-process inventory account. When goods are

finished, direct material costs are moved from RIP account to Cost of Goods Sold account rather

than finished-goods inventory account. Because finished goods are not kept in the inventory, they

are sold immediately after the production. In addition, conversion costs can be applied to cost of

goods sold instead of work-in-process account because there is no need to use work-in-process

inventory account in a JIT environment. Instead of transferring the finished products to finished

goods inventory, they can be transferred directly to cost of goods sold account. This recording

system is called Backflush Costing. Backflush costing is appropriate in a JIT environment, because

in this environment work-in-process and finished-goods inventories are minimal, and goods are

sold as they are produced. In Backflush costing system no effort is made to track materials and

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components from material warehouse through work-in-process and finished goods. Backflush

costing system eliminates transactions to record the movement of raw materials to work-in-

process inventory. In addition, movements of inventory are not reported until finished goods are

produced. Work-in-process inventory is updated only after taking a physical count of the

inventory on the shop floor Backflush costing system records the purchase and requisition of raw

material combining to an account called “Raw and In-Process Inventory” as shown in the entry “a

and b”, because under a JIT setting raw materials are sent to production immediately after they

are purchased. In addition, actual direct labor and factory overhead costs in the Traditional costing

system are transferred to work-in-process inventory account. By contrast, direct labor and factory

overhead costs are combined and transferred not to work-in-process-inventory account but to an

account called conversion costs in Backflush costing system as shown in the entry “c and d”,

because work-in-process.

C. The Effect of JIT on Performance Measurement System:

In JIT system products are produced on the basis of demand so all the machinery and equipment

is not on force. In the JIT environment, the aim is to reduce inventory, increase flexibility, and

maximize customer satisfaction by reducing lead-time and increasing quality. Reduction in

inventory, defect rates, lead and set up times, increase in quality so it can be used appropriate

performance measures. If management accountants should take an active role in identifying and

monitoring these types of critical and non-financial performance measures. Otherwise, the

accounting function cannot help establish an effective operational control system.

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Reference of BAT BD for a closer

practical look to “JIT”

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Why BAT has chosen JIT

1. Cigarette making is not that much lengthy process and there is a high demand of BAT

products, which make BAT easier and comfortable to adopt JIT as these factors are pre

requisite for applying JIT.

2. It minimizes cost and gives BAT a competitive advantage over it’s competitors

3. Very much cost effective and easy to implement

How it works in BAT:

BAT has a variety of choices in how it handles obtaining and recording the costs of its raw materials

and labor. For example, it could order a year's worth of tobacco every January and warehouse

them for use during the next 12 months of widget production. Or it could order tobacco once a

month and warehouse them for use during each month's production. Or it could order tobacco

only after it gets an order, which minimizes the costs that Company BAT will have to incur to store

tobacco.

This last idea is part of the just-in-time method of inventory management. By the time Company

BAT has to pay the invoices for those raw materials (say, 90 days), it will have already sold or at

least finished producing the cigarette and will thus have much more cash on hand to pay those

invoices.

We can take example of Benson & Hedges: It requires nearly 17 ingredients. More or less all of

them are ordered as per JIT. But BAT has a contract with its dealers regarding the minimum yearly

level of their purchase. Moreover, sometimes for some ingredients such as the cigarette paper of

Benson & Hedges which comes from abroad takes a long time duration for shipment. In the peak

season these ingredients are reserved as pre decided violating the JIT concept.

The effects of JIT on BAT

1. This system would discourage managers from producing unnecessarily output for mere

inventory piling since it increase its production level any time.

2. In JIT the number of accounting entries required would significantly be reduced. Likewise,

the supporting vouchers, documents and other things would also be reduced.

3. Lower inventory results lower payment of financial cost of inventories.

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4. Maintenance issues relating to material inventory relief huge workforce to work on

productive activities, thus saves money.

As MTO of BATB finance division Nahian Rahman Rocchi puts it:

“Using JIT is efficient and gives us total control in our spending. We want to keep our product cost

as low as possible and ensuring that none of our brands are over or under costed. We never had

any problems with our existing accounting system that needed special attention.”

Despite the immense success that BATBD has gained over the years it still believes that it’s JIT is

subject to the following problems which it wants to eradicate as much as possible-

1. Requires a high connectivity with suppliers.

2. As Tobacco is not available in all season sometimes the suppliers increase the price while

high demand.

3. Delivery in Bangladesh is not so prompt as BAT requires it to be

4. Sometimes market predictions become difficult.

Summary & Conclusion

In today’s competitive environment, companies have to find ways to be competitive. They have

to maximize the customer satisfaction in order to be able to survive. JIT manufacturing system is

one of the tools that can be used to become competitive. The use of this new production system

reduces inventory related costs, increases quality, reduces lead-time, and reduces manufacturing

costs by minimizing non-value-added activities and their costs. All these represent the benefits

offered by the implementation of JIT production system. By reducing costs and reducing lead-

time, company’s response to customer needs increases.

JIT production system causes some changes in the company implementing it. One of the areas

that are affected by JIT implementation is cost and management accounting. First of all, JIT has

emerged as an effective cost management tool because it helps to achieve significant costs

savings. In addition, the JIT system simplifies the cost accounting processes since it eliminates

direct labor and inventory accounting. In a JIT environment there is little or no work-in-process

and finished-goods inventories. Furthermore, use of JIT requires management accountants to

change their performance measurement systems. Performance measures based on production

efficiency should be replaced by measures based on lead-time reduction, setup reduction,

increased quality and others that help the JIT system to function in the best way.

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References

1. Anon., n.d. Enotes. [Online]

Available at: http://www.enotes.com/research-starters/just-time-jit-manufacturing

dalton, J. T., n.d. A Theory of Just-in-Time and the Growth in trade, s.l.: s.n.

Gupta, D. A. K., n.d. Just in Time Revisited: Literature Review and Agenda, s.l.: s.n.

Matsui, A. B. A. a. Y., n.d. The relationship between JIT production and Manufacturing strategy and their

impact on JIT performance, s.l.: s.n.

Schultz, K. L., n.d. The Effects of JIT on the development of business, s.l.: s.n.

TANIŞ, D. İ. D. A. P. D. V. N., n.d. THE EFFECT AND IMPLEMENTATION OF JUST-IN-TIME SYSTEM, s.l.: s.n.