Just in Time Purchasing

Topics: Manufacturing, Kanban, Inventory Pages: 14 (4536 words) Published: September 13, 2013
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Just In Time Purchasing|
Prepared for:|
Pn. Norlia Binti Karim|
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Prepaid by:|
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| Ahmad Farhan Bin Yaakop| 1233009| |
| Muhammad Zafri Bin Othman| 1233011| |
| Muhammad Taqi’uddin Bin Mohd Hamzah Murghayah| 1233019| | Managerial AccountingDMAN 3103 |
Diploma in Islamic Banking|
Session 1 2013/2014|

Table of Contents
Table of Contents1
1.0.Introduction Just In Time (JIT) Management2
2.0.Basic Features if JIT3
2.1.Plant Layout3
2.2.Grouping and Empowerment of Employees3
2.3.Total Quality Control4
2.4.Traceability of Overhead Costs4
2.5.Inventory Effect5
3.0.Setup and Carrying Cost: The JIT Approach6
4.0.Due Date Performance: The JIT Solution7
4.1.Long-Term Contract7
4.1.1.Continuous Replenishment7
4.1.2.Electronic Data Interchange (EDI)7
4.1.3.JIT II8
4.2.Reducing Setup Times9
5.0.Avoidance of Shutdown and Process Reliability: The JIT Approach9
5.1.Total Preventive Maintenance9
5.2.Total Quality Control10
5.3.The Kanban System10
6.0.Discount and Price Increases: JIT Purchasing versus Holding Inventories11
7.0.JIT’s Limitation11
8.0.Conclusion13
Bibliography14

1.0. Introduction Just In Time (JIT) Management
The manufacturing environment for many of these traditional, large-batch, high setup cost firms has changed dramatically in the past 10 to 20 years. For one thing, the competitive markets are no longer defined by national boundaries. Advances in transportation and communication have contributed significantly to the creation of global competition. Advances in technology have contributed to shorter life cycles for products, and product diversity has increased. Foreign firms offering higher-quality, low-cost products with specialized features have created tremendous pressures for our domestic large-batch, high setup cost firms to increase both quality and product diversity while simultaneously reducing total cost. These competitive pressures have led many firms to abandon Economic Order Quantity (EOQ) model in favor of a just-in-time approach to manufacturing and purchasing.

JIT manufacturing is a demand-pull system that requires goods to be pulled through the system by present demand rather than pushed through the system on a fixed schedule based on anticipated demand. Many fast-food restaurants, like McDonald’s, use a pull system to control their finished goods inventory. When a customer orders a hamburger, it is taken from the rack. When the number of hamburgers gets too low, the cooks make new hamburgers. Customer demand pulls the material through the system. This same principle is used in manufacturing settings. Each operation produces only what is necessary to satisfy the demand of the succeeding operation. The material or subassembly arrives just in time for production to occur so that demand can be met. Thus, complementary to and part of the total JIT system is the concept of JIT purchasing.

JIT purchasing requires suppliers to deliver parts and materials just in time for production. Supplier linkages are vital. Supply of parts must be linked to production, which is linked to demand. In survey among manufacturer in United States, 85 percent say that some or most materials, parts, and components are supplied to them on a JIT basis (John McClenahen and Jill Jusco, 2001). Thus, JIT inventory systems now appear to be extensively used.

JIT has two strategic objectives: to increase profits and to improve a firm’s competitive position. These two objectives are achieved by controlling costs (enabling better price competition and increased profits), improving delivery performance, and improving quality. JIT offers increased cost efficiency and simultaneously has the flexibility to respond to customer demands for better quality and more variety. JIT manufacturing and purchasing represent the continual pursuit of productivity through the elimination of waste....

Bibliography: Don. R Hansen and Maryanne M. Mowen. (2005). Management Accounting. United States of America: Thomson South Western.
Gene Schwind. (1984). Man Arrives Just-In-Time to Save Harley Davidson. Material Handling Engineering , 28-35.
Jackson, Sayyer. (2008). Managerial Accounting 4e. A focus On Ethical Decision Making. Canada: Thomson South Western.
John McClenahen and Jill Jusco. (2001, May 7). JIT Inventory Systems Hold Appreal. Industry Week , 250 (7), pp. 11-13.
Ken Vollmer. (2001, July 23). The Internet Will Determine the Future of EDI. Internet Week , 23-27.
Michael Hammer and James Champy. (1993). Reenginering the Corporation. New york: HarperBusiness.
Ray H. Garrison, Eric W. Noreen. (1997). Manegerial Accounting. USA: Irwi- McGraw Hill.
Ronald W. Hilton. (2001). Manegerial Accounting. New York: McGraw Hill.
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