Green University of Bangladesh (GUB)

AssignmentOn

Accounting Theory – (ACT – 412)

Topic: Just In Time Approach

Semester: Summer – 2014 (1402)

Course Instructor:

Shahreen Sonia

Lecturer, Accounting Theory

Department of Business Administration (DBA)

Green University of Bangladesh (GUB)

Dhaka, Bangladesh.

Prepared by:

Md. Moazzem Hossain

ID. 110106034

Date:12th August 2014 Signature

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Table of Contents

Sl. No. Name of Topic Page No.

i. Letter of Transmittal 3

ii. Introduction 4

iii. History of Just In Time 5

iv. Literature Review 5

v. Just In Time Philosophy 5

vi. Objective of Just In Time Manufacturing System 6

vii. Characteristics of Just In Time 6 & 7

viii. Key Elements of Just In Time 7 & 8

ix. Activities of concept Just In Time (JIT) 9

x. Benefits of Just In Time 9

xi. Advantages and disadvantages of Just In Time inventoy 10

xii. From Supermarket to Shop Floor 11

xiii. Bibliography 11

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Letter of Transmittal

August 12, 2014Shahreen Sonia

Lecturer, Accounting TheoryDepartment of Business Administration (DBA)Green University of Bangladesh (GUB)

Subject: Submission of an assignment.

Dear Madam

I gladly present to you the assignment titled “Just In Time Approach.” I have made the assignment as you give me to do by help of your lectures, the book as you suggested us for the course titled “Accounting Theory” and internet.

I believe the knowledge and experience I gathered during the assignment will be extremely helpful in my future academic life and professional life. I will be grateful to you if you accept the assignment.

Your support in this regard will be highly appreciated.Thanking you.

___________________Md. Moazzem HossainID. 11010603

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INTRODUCTION

Why Just-In-Time manufacturing when there are dozens of other manufacturing philosophies from which a company may choose? Just-In-Time (JIT) manufacturing distances itself from the competition because no large capital outlays are required. Other methods promote complexity, large overheads, automation, and other "state-of-the-art" technologies, while JIT advocates simplifying and streamlining the existing manufacturing process.

Since World War II, traditional American companies have developed a way of doing business that entails top management planning, re-planning, and more planning. Although some planning is good, it ultimately adds no value to the end product. Customers want quality products at competitive prices - they couldn't care less how much planning was required to get that product to them. By implementing JIT, much of the planning disappears and a large portion of the remaining planning is entrusted to the shop floor personnel.

The purpose of this text is to introduce basic JIT concepts and assure you that JIT can work in your company. The transition to JIT often is not easy, but it is almost always rewarding. All employees in the company - from top management to direct labor - must have a clear understanding of the benefits that JIT offers to them and to their company. JIT is not a cure-all for every manufacturing problem. But, if implemented properly, JIT is a no-cost or low-cost method for improving your manufacturing process.

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HISTOY of JUST IN TIME

JIT is sometimes said to have been invented by Henry Ford because of his one-at-a-time assembly line, circa 1913. This is an incorrect conclusion since Ford's system could handle no variety and was designed for large volumes and large batch sizes of the same parts.

JIT was invented by Taiichi Ohno of Toyota shortly after World War II. Ohno's system was designed to handle large or small volumes of a variety of parts. Many people are intimidated by JIT because of its association with Japan. If these people take a broader look at JIT, they will see that it is nothing more than good, common sense manufacturing.

Ohno and his associates came to America to study our manufacturing processes. They determined that our system was much like the system that Japanese companies were using, but Japanese companies could not afford waste in their systems due to the devastation to their economy caused by World War II. While in America, Ohno learned much about America's culture. One of his discoveries has transformed the world's perspective on manufacturing.

JUST IN TIME PHILOSOPHY

The basis of Just-In-Time (JIT) is the concept of ideal production. It centers on the elimination of waste in the whole manufacturing environment, from raw materials through shipping. Just-In-Time is defined as "the production of the minimum number of different units, in the smallest possible quantities, at the latest possible time, thereby eliminating the need for inventory. Remember, JIT does not mean to produce on time, but to produce just in time.

The storage of unused inventory is a waste of resources. JIT inventory systems expose hidden cost of keeping inventory, and are therefore not a simple solution for a company to adopt it. The company must follow an array of new methods to manage the consequences of the change. The ideas in this way of working come from many different disciplines including statistics, industrial engineering, production management, and behavioral science. The JIT inventory philosophy defines how inventory is viewed and how it relates to management.

Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say JIT is implemented without an awareness that removing inventory exposes pre-existing manufacturing issues. This way of working encourages businesses to eliminate inventory that does not compensate for manufacturing process issues, and to constantly improve those processes to require less inventory. Secondly, allowing any stock habituates management to stock keeping. Management may be tempted to keep stock to hide production problems. These problems include backups at work centers, machine reliability, process variability, lack of flexibility of employees and equipment, and inadequate capacity.

In short, the Just-in-Time inventory system focus is having “the right material, at the right time, at the right place, and in the exact amount”, without the safety net of inventory. The JIT system has broad implications for implementers.

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OBJECTIVE of JUST IN TIME MANUFACTURING SYSTEM

Eliminate waste that is, minimize the amount of equipment, materials, parts, space, and

worker’s time, which adds a great value to the product.

Increase productivity.

JIT means making what the market demands when it is in need. It is the most popular systems that incorporate the generic elements of lean systems. Lean production supplies customers with exactly what the customer wants, when the customer wants, without waste, through continuous improvement.

Deploying JIT results in decrease of inventories and increases the overall efficiencies. Decreasing inventory allows reducing wastes which in turn results in saving lots of money.

CHARACTERISTICS of JUST IN TIME

The consequent savings are to be utilised for reducing cost and rendering better service to the customer. Shigeo Shingo an authority on JIT at Toyota classifies the wastes to be eliminated as follows.

The seven wastes to be eliminated according to JIT are:

Over production Inventory Waiting time Movement Effort Defective products Over processing

a) Over production : Over production is to manufacture products before it is actually needed. If the demand for that product decreases, the extra parts or products produced may not be useful or needed. Also over production results in high storage costs and is also difficult to detect defects. So, over production is considered a waste.

b) Inventory : Excess procurement or production builds up stock of materials which are not immediately used, thus locking space and funds carrying heavy costs. The inventories at different levels of an organisation – Supplier distribution, Production, and Customer distribution.

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c) Waiting time : Waste of time happen when goods are not moving or being processed. The operator, the machine or the part will either be not working or be worked upon. The duration of waiting is can be said to be unproductive and may create more serious consequences.

d) Movement : Any unnecessary movement is a waste of energy; it causes blockages, disrupting movements and delaying the flow of other items creating delays.

e) Effort : The people, who work, do not make a study as to how the products on which they are making are utilised and do not realise the purpose for which they are made. This lack of education will lead to waste of resources. Finally, they end up in shortage of resources when needed.

f) Defective products : The defective products lead to a tremendous loss to the company. This is because they use up the same equipments, workmen and the time that would be used to make good products. Thus defective products use up resources and result in losses.

g) Over Processing : Some steps like unnecessary processing or production do not add value to the final output. As a result, it is waste of all the inputs that go into the process.

KEY ELEMENTS of JUST IN TIME

1) Stabilize and level the MPS with uniform plant loading ( heijunka in Japanese):

Create a uniform load on all work centers through constant daily production (establish freeze windows to prevent changes in the production plan for some period of time) and mixed model assembly (produce roughly the same mix of products each day, using a repeating sequence if several products are produced on the same line).  Meet demand fluctuations through end-item inventory rather than through fluctuations in production level.  Use of a stable production schedule also permits the use of backflushing to manage inventory: an end item’s bill of materials is periodically exploded to calculate the usage quantities of the various components that were used to make the item, eliminating the need to collect detailed usage information on the shop floor.

2) Reduce or eliminate setup times:

Aim for single digit setup times (less than 10 minutes) or "one-touch" setup this can be done through better planning, process redesign, and product redesign.  A good example of the potential for improved setup times can be found in auto racing, where a NASCAR pit crew can change all four tires and put gas in the tank in under 20 seconds.   (How long would it take you to change just one tire on your car?)  The pit crew’s efficiency is the result of a team effort using specialized equipment and a coordinated, well-rehearsed process.

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3) Reduce lot sizes (manufacturing and purchase):

Reducing setup times allows economical production of smaller lots; close cooperation with suppliers is necessary to achieve reductions in order lot sizes for purchased items, since this will require more frequent deliveries.

4) Reduce lead times (production and delivery):

Production lead times can be reduced by moving work stations closer together, applying group technology and cellular manufacturing concepts, reducing queue length (reducing the number of jobs waiting to be processed at a given machine), and improving the coordination and cooperation between successive processes; delivery lead times can be reduced through close cooperation with suppliers, possibly by inducing suppliers to locate closer to the factory.

5) Preventive maintenance:

Use machine and worker idle time to maintain equipment and prevent breakdowns.

6) Flexible work force:

Workers should be trained to operate several machines, to perform maintenance tasks, and to perform quality inspections.  In general, JIT requires teams of competent, empowered employees who have more responsibility for their own work.  The Toyota Production System concept of “respect for people” contributes to a good relationship between workers and management.

7) Require supplier quality assurance and implement a zero defects quality program:

Errors leading to defective items must be eliminated, since there are no buffers of excess parts.  A quality at the source (jidoka) program must be implemented to give workers the personal responsibility for the quality of the work they do, and the authority to stop production when something goes wrong.  Techniques such as "JIT lights" (to indicate line slowdowns or stoppages) and "tally boards" (to record and analyze causes of production stoppages and slowdowns to facilitate correcting them later) may be used.

8) Small - lot (single unit) conveyance:

Use a control system such as a kanban (card) system (or other signaling system) to convey parts between work stations in small quantities (ideally, one unit at a time).   In its largest sense, JIT is not the same thing as a kanban system, and a kanban system is not required to implement JIT (some companies have instituted a JIT program along with a MRP system), although JIT is required to implement a kanban system and the two concepts are frequently equated with one another.

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Basic Elements of JIT

1. Flexible resources2. Cellular layouts3. Pull production system4. Kanban production control5. Small-lot production6. Quick setups7. Uniform production8. Quality at the source9. Total productive maintenance10. Supplier networks

ACTIVITIES of CONCEPT JUST IN TIME (JIT)

After the analysis, application JIT in inventory management at stamping production is depend on the activities below:

(i) Raw material always in enough quantities.(ii) Work in process always at the minimum quantities.(iii) Finished goods would directly deliver to buyers.(iv) Wasting work in process seldom occur.(v) Buffer stocks always at the minimum quantity.(vi) Delivering raw material depends on demand only.(vii) Space for inventories is small.(viii) Time table scheduling is made by the suppliers.(ix) Delivering materials is more often and only at small size.(x) Long term relationship is built between suppliers(xi) Suppliers is advised to use the application of Just in Time (JIT) , and(xii) The employers should give the commitment on inventories and quality.

BENEFITS of JUST IN TIME

1. Reduced inventory2. Improved quality3. Lower costs4. Reduced space requirements5. Shorter lead time6. Increased productivity7. Greater flexibility8. Better relations with suppliers9. Simplified scheduling and control activities10. Increased capacity11. Better use of human resources12. More product variety

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ADVANTAGES and DISADVANTAGES of JUST IN TIME INVENTORY

By using just-in-time concepts, there is a greatly reduced need for raw materials and work-in-process, while finished goods inventories should be close to non-existent. Just-in-time inventory has the following advantages:

There should be minimal amounts of inventory obsolescence, since the high rate of inventory turnover keeps any items from becoming old.

Since production runs are very short, it is easier to halt production of one product type and switch to a different product to meet changes in customer demand.

The very low inventory levels mean that inventory holding costs (such as warehouse space) are minimized.

The company is investing far less cash in its inventory, since less inventory is needed. Less inventory can be damaged within the company, since it is not held long enough for

storage-related accidents to arise. Production mistakes can be spotted more quickly and corrected, which results in fewer

products being produced that contain defects.

Despite the magnitude of the preceding advantages, there are also some disadvantages associated with just-in-time inventory, which are:

A supplier that does not deliver goods to the company exactly on time and in the correct amounts could seriously impact the production process.

A natural disaster could interfere with the flow of goods to the company from suppliers, which could halt production almost at once.

An investment should be made in information technology to link the computer systems of the company and its suppliers, so that they can coordinate the delivery of parts and materials.

A company may not be able to immediately meet the requirements of a massive and unexpected order, since it has few or no stocks of finished goods.

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FROM SUPERMARKET to SHOP FLOOR

Legend has it that Ohno got the idea for his manufacturing system from America's supermarket system. Ohno learned the kanban(pull) system from our supermarket system in which customers pulled items from the shelves to fill their shopping carts, thereby creating an empty space on the shelf. The empty space is a signal for the stocker to replace that item. If an item was not bought that day, there was no need to replace it. When item quantities become low, that is the signal for the stockers to order more goods from their suppliers. Customers are content to take just what they need, because they know that the goods will be there the next time they need them.

To apply this concept to manufacturing, Ohno devised a system whereby the usage of parts is determined by production rates. Materials are pulled through the plant by usage or consumption of the parts in final assembly. To obtain maximum results, Ohno decided to move the machines closer together and form manufacturing cells.

The JIT system continued to evolve, with the central thrust being the elimination of waste. Ohno's system has become a totally flexible system in which production rates are determined by the end user rather than the producer.

BIBLIOGRAPHY

http://personal.ashland.edu/~rjacobs/m503jit.html http://eprints.uthm.edu.my/1624/1/Talib_Bon_FPTPK_%28ICBER_2011%29.pdf http://www.accountingtools.com/questions-and-answers/the-advantages-and-

disadvantages-of-just-in-time-inventory.html http://nikhatshahin.wordpress.com/2011/10/18/ma0044-q6-list-the-objectives-of-jit-

explain-briefly-characteristics-of-jit/ http://www.ijebf.com/IJEBF_Vol.%201,%20No.%202,%20March%202013/Just-in-Time

%20Manufacturing%20System%20%20Just-in-Time%20Manufacturing%20System.pdf

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