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The financial implications / impacts of JIT implementation

JIT,impacts ,implication ,financial,business enterprise

A financial manager of a company needs to acquire information about the expenditures of the company so as to set the selling price of the commodity. This also helps to determine the cost of goods sold as well as the efficiency of the enterprise. This information is collected with the analysis of the financial statements of the company. All financial statements are the instruments for judging the position of a business enterprise. Thus a financial statement reveals a great deal of insight to financial condition of the business enterprise. Business executives and managers need this financial information to help them plan and control their activities in running business.

Planning refers to setting objectives or goals for future performances and requires control for completion of these objectives. Controlling involve monitoring the extent of these planned objectives which include earning a great deal of profit as well as saving the resources. Planning for any business enterprise implies to different techniques which are helpful in running the business smoothly. In modern approach, there is special concern over saving the resources and JIT Technique is one of these approaches. JIT (Just-In-Time) is to schedule manufacturing activities in a manner to minimize or even eliminate inventories of direct material and finished goods. The concept of JIT reveals access of major goals within the limited time frame so as to save the time and cost. In a manufacturing business, companies interact with JIT and avail advantages of time and cost saving. The implementation of JIT may vary upon the nature of operations that are performed by the enterprise.

There can be two applications of JIT to manufacturing operations. Many operations involve arrival of direct materials just in time when the manufacturing process is ready.Secondly; it can be applied to the completion of manufacturing process within the time frame so as to ship finished goods to the market. The technique is widely accepted for the advantages it offers to the manufacturing enterprises. A company that runs a manufacturing business needs to complete the order of specific goods. Using JIT, it can avoid the need of a finished goods Inventory account or subsidiary ledger. When the order is fulfilled the goods are directly marketed to cost of goods sold avoiding their entry to work in process inventory account. It may reduce the requirement for materials inventory records as well as those for finished goods. Purchase of material may be debited directly to the work in process inventory account and cost of finished goods may be debited directly to the cost of goods sold.

In short, the introduction of JIT brings simplification to the accounting process. It also offers other advantages .The most significant benefit is that the company does not have to tie up money in large inventories of direct materials and finished goods. Also the company doesn’t need to maintain storage facilities for these inventories. These inventories are not only costly to maintain but increase cycle time and inhibit the detection of defective parts. The JIT guides to an easy access to manufacturing operations. This include acquiring of material just in time for production, and then advancing to next stage just in time and the process goes on till the final stage for shipment to customers. All operations are fulfilled just in time and a lot of time as well as money is saved .This saving can utilize for other purposes and thus the extra time and money wasted in traditional methods are saved. The JIT signifies the value added activities and overwhelms all other unnecessary operations that are of trivial importance and time consuming.

The JIT Technique has converted the traditional slow and idle process of manufacturing to highly efficient and cheaper process. It has transform activity in the industrial process. Where JIT has been introduced, these changes are apparent in the sense that there is a huge increase of quality product. It has disengaged all non-value-added costs, such as defective materials, in-process inventories, and delays which were the characteristics of traditional system. The production cycle time has changed to minutes instead to hours or days in traditional process Even the quality of product standard is very high. Any defective items can be notified at the spot immediately. In traditional process the manufacturing companies these inventories give rise to high operational problems thus halting down the entire industrial process and Work in process is the largest current asset. In JIT system the amount of WIP appears to be insignificant .JIT has improvise the whole process eliminating non-value-added costs and delays, JIT simplifies to long-term productivity and reduction of operating costs .

JIT allows more than single, authoritative cost accounting method. These include back-flush costing which is compatible with JIT manufacturing. These techniques do not require the departmental documentation as it is required in traditional costing methods. In JIT there is lesser use of paperwork. More reliance is on efficiency of the production .Back-flush costing used by JIT has eliminated conventional production reports thus more emphasis is paid on cycle time measurement, and the tight production and quality control. JIT access to lower inventory cost for materials and parts, works in process, and finished goods. This provides an affordable cost for the enterprises and more attention can be paid to other areas. In this way, the company not only save its expenditure on Inventory buffers, but the process of industrialization is simplified for execution. Large inventories storages are a liability and require a lot of expenditure to maintain. In addition to that, paper work also gives rise to extra work and wastage of money. In these perspectives, the JIT Technique is a handy tool for any manufacturing enterprise.

Besides these advantages, JIT technique could be a problem for manufacturing concern as a delay in the arrival of a direct material may bring the manufacturing operations to a halt. Therefore the JIT concept is only feasible when the suppliers of the direct materials are highly credible and reliable. The industrial process tends to slow down when there is hurdle in supply of manufacturing products. IT Technique only works well when there is a direct linkage for all.

In such circumstances, the JIT Technique is a failure .The application of JIT Technique becomes a burden .Therefore; it is utilized only in such cases where there is more reliability of resources such that the industrial process runs smoothly.
Published: 2008-11-21
Author: Maheen Mirza

About the author or the publisher
Hi ,I am Maheyne Mirza.I am Masters in General History and working as a teacher at primary level .Writing is my passion and I like to search about oppurtunities where I can explore knowledge and display my skills.
www.Haveinsight.wetpaint.com

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