Just-In-Time Purchasing - Essay Example

JIT Purchasing Just-In-Time Purchasing Introduction and Background In the modern competitive business system, manufacturing sector has proclaimed the significance of grabbing business competencies. Today business is not only about buying or selling but more about improvisation of each and every functioning unit of the business. Manufacturing, which is one unit in the business sector of any country, it is thus needs effective management (Podolsky, 1996, p.69). It is a unit which needs to be well controlled to make the organization system running effectively in the competitive business environment. JIT purchasing is one of the modern engineering techniques which offer core competencies to the manufacturing system (Podolsky, 1996, p72). It is a combination of methods of engineering and management implied to manufacturing in order to meet cost management goals. The concept is derived from lean manufacturing (total waste minimization) in order to optimize cost and resources of the manufacturing unit, bringing a system of optimized output with maximum efficiency (Podolsky, 1996, p75). Considering JIT purchasing as a cost management technique and the concept of managerial accounting, this study will evaluate JIT in scholarly literature abstract. It will access and analyze JIT principle with respect to authors’ explanations and perceptions. The goal is to assess JIT for manufacturing concern and for the concern of the organization business goals and objectives. Literature Review According to Hutchins (2012), JIT purchasing is a highly productive technique. It is a method which increases the potential of the manufacturing unit (Hutchins, 2012). It increases the response time, the action time and so as process time of manufacturing. JIT purchasing is defined as “a system which purchases the exact quantity of materials, resources, manpower required to manufacture defined set of finished goods and products” (Talha, 2002, p.67). This is to optimize the cost of manufacturing by manufacturing the exact number of goods required to get delivered. Just in time purchasing as the name projects is a concept of pro-activeness (Talha, 2002). It is a system which operates in response and in reaction of the ordered number of goods-the backward pass. Keeping the exact number of inventory based on pre-requested orders is the main task of Just in Time purchasing operation (Gunaasekaran, 1999). Only essential resources, material and men power are purchased in the JUST-In-Time mode of purchasing. This is how all extra work is avoided and only essential work is carried out in the JIT purchasing systems (Talha, 2002, p.86). On the other side, there are some issues which prevail in JIT stock management. Several authors perceive JIT inventory management as a complex task and operation. JIT purchasing entirely focuses on reduction of stocks as Kaplan (2009) talks about, but it does not give the exact quantity or the exact amount of how much stocks are sufficient and how much not to get preserved (Kaplan, 2009). With the optimistic approach JIT sets the limit of keeping two weeks stocks of the two weeks supplies altogether. However, this gets contradicted by Honda’s three hours of inventory in the Marysville yard. On the other hand, Ohio yard gives more confusion to the managers of the Just in Time under given situation (Hirsch, 2000, p.32). Meanwhile, the same stock reduction approach of JIT purchasing rightly fits to the cost management goal. Because if the inventories are smaller and accurate (as per the required deliveries), the cost will be minimized and in JIT’s definition “optimized” (Talha, 2002, p.67). This is how the positive aspect of JIT purchasing inventory management comes forward. As Ernest Raia describes, JIT purchasing offer reduced inventory with a bottom line approach of few weeks of worth production inventory (as cited in Zamora, 1991). It gives a sense in which supplies are equal to the demands, minimizing the cost and so as the waste raised by excessive inventories or over expanded inventory pipelines (Zamora, 1991). According to the modern literature, JIT purchasing operates on pull manufacturing systems. Pull methodology is a format of reverse processing like the orders come from the marketing section next to the manufacturing. This is opposite to the push methodology where what you manufacture goes out to market and get distributed. Just as Hirsch and Kaplan describes, JIT purchasing system adapting the pull methodology is highly beneficial (Kaplan, 2009, p.53). This is because when orders are placed with respect to the customer demand, they are faster and more precise to get delivered. Similarly, accuracy is paramount in pull JIT purchasing systems because such systems place order accurately and precisely to the requirement of the customer (Kaplan, 2009). Meeting the customer standards, quality worth production is there in pull JIT systems instead of wasted quantity production found in most of the push systems. Meanwhile, a negative view on pull JIT purchasing is that such systems bring decentralized and integrated pattern of manufacturing. By having a decentralized pattern the departments get interlinked and become dependent on each others’ actions and decisions (Kaplan, 2009, p.72). Until the department A has not purchased the required amount of material, the next department B will not be ready to manufacture the desired set of goods. Hence, such integrated systems make integration compulsory (Hirsch, 2000, p.54). If one department is down or out of the order the entire system gets down and becomes less efficient and less productive. In managerial accounting perspective, this is one weakness which JIT purchasing pull systems carry in their operation. Carrying the risk of lags and bottlenecks enables the risk of expenditure to get lost to come forward. Hence, this is how such pull systems contradict in the manufacturing and processing environments. They require ultimate collaboration, integration and coordination or else they are out of their performance and efficiency (Hirsch, 2000). Quality which has remained significant among manufacturers is also what comes via JIT purchasing system. Just as Dixit Garg describes, JIT purchasing system holds the potential of quality improvement. It is a quality enhancement technique most adapted by world’s successful manufacturers in Japan, which proves that JIT is a highly proficient and highly competitive concept (Garg, 2011, p.1824). Moreover, Indian industries have also accepted JIT purchasing as a sound quality improvement technique. They have adapted it to wipe out all the intensive business challenges such as soaring costs, poor relationship of vendors, or poor quality of products and services (Kazemi, 2012). Meanwhile, an issue prevails that many industries due to lack of knowledge, lack of skill or qualification they are unable to acquire or administer such advanced management techniques - JIT purchasing. The problem lies in Indian, Bangladeshi and Chinese manufacturing firms which are in the emerging state of adapting such advanced manufacturing methods - JIT purchasing system. This is another contradiction which falls in between JIT acceptance or rejection (Garg, 2011). Lean manufacturing was introduced by Taiichi Ohno to Toyota motors early in the 1940s. However the idea of lean manufacturing did not come to the world’s attention until the 1990s. By that time, Toyota had implemented lean to its supply base and distribution base. A comparison between the mass production and lean production showed that lean production was a much more efficient system than mass production. There have been some tremendous benefits of lean manufacturing. The biggest advantage of lean manufacturing is its tendency to produce the required amount significantly reducing the number of inventory and cost. Robust system means fewer mistakes which in turn mean less error corrections and which again lead to a lower cost (Melton, 2005). Another comparison between lean suppliers and non lean suppliers showed that suppliers that adopted the lean manufacturing process gained competitive advantage over their in various fields than their competitors (Wu, 2003). However a study in the Chinese companies show that different companies that adopted the lean system had difficulties in the design related issues. Furthermore, companies that have adopted the lean system had problems in coping with the volume/mix flexibility and point of use delivery (Taj, 2008). Kanban is a visual representation or a visual signal that helps determines the quantity of a product that needs to be produced and informs about the time in which it needs to be produced. Kanban produces signals that order the machine to start production. If there is no Kanban then there is no production (Melton, 2005). Kanban reduces the number of inventory in and makes sure that resources and money is not wasted on any unnecessary production (Melton, 2005). However there are three major problems that exist when implementing Kanban in JIT environment. The first basic problem regards the allocation of work load. The work needs to be distributed evenly in order to avoid bottlenecks. Also, there is always confusion regarding the number of Kanbans that need to be implemented. Some of the processes in JIT require the consideration of all the resources at once a quality that lacks in the Kanbans being implemented in the JIT (Deleersnyder et al., 1989). Kaizen is a Japanese term, which means continuous improvement. In business, Kaizen is a term that represents an improvement in every sector of a company until optimum efficiency is obtained. The philosophy of Kaizen is change. The change does not necessarily have to be dramatic or huge to make an impact it. Kaizen can refer to small multiple changes over the time those eventually lead to huge profits for the company. Kaizen is usually associated with just in time strategy. One of the authors, Webb (1993), evaluates the need for the implementation of Kaizen by the American companies (Webb, 1993). The author goes on to compare the two different process applied by the Japanese companies and the American companies. In the end the author suggests a few proposals for the American companies to implement if they are to compete at a global scale (Webb, 1993). Six-Sigma is a simple tool developed by Motorola in 1985 and gained popularity in 1995 after general electric implemented them as their business strategy. A study carried out by Schaffer shows that companies that implemented Six-Sigma as their business strategy. To study the performance of the companies the study took into account different factors. The study also showed an increase in the employee productivity. However the study did not find any improvement in the efficiency of assets. The study further concluded that Six-Sigma did not have any negative impacts on the company. In relation to the JIT, Six Sigma helps to maintain consistency in performance of the company (Shafer & Moeller, 2012). However the above study had some limitations. Since the data used for the research was provided by Compustat and although, reliable there is a chance that the data provided might have been incorrect, therefore the incorrect data provided could have had an impact on the research and might have produced incorrect results. The research included firms that were widely known for using the six sigma strategy (Shafer & Moeller, 2012). The study did not take into account the progress of those firms which had applied Six-Sigma but had not made the information public. The current study based its study on past researches any mistake in those researches would have had an impact on the results. The adoption of Six-Sigma might not necessarily have been the reason for the success of the company but in reality the true reason for their success might have been masked by the six sigma (Shafer & Moeller, 2012). Conclusion The paper discussed various factors that relate to just in time purchasing. The system has indeed seen many successes in the past and its various components and processes have proven to be the success factors of the Asian industries. However there are some aspects of JIT that need to be addressed before it can be recognized as a perfect system and adopted globally by companies in Europe and America. This paper has discussed the issues revolving around JIT. Lack of literature and empirical evidence one cannot reach the conclusion whether a company can thrive on the JIT system. The literature that was found was contradictory to the other. To reach any conclusion there is a great need for further research on topics related to JIT. List of References Deleersnyder, J.-L., Hodgson, T.J., Muller Malek, H. & OGrady, P.J., 1989. KANBAN CONTROLLED PULL SYSTEMS. Management sciences, 35(9), pp.1079-91. Garg, D., 2011. Comparative analysis of Japanese JIT purchasing and traditional Indian purchasing system. International Journal of Engineering Science and Technology, 3(3), pp.1816-33. Gunaasekaran, A., 1999. JIT Purchasing: An investigation for research and applications. International Journal of Production Economics, 59, pp.77-84. Hirsch, M., 2000. Advanced Management Accounting. Singapore: Cengage Learning EMEA. Hutchins, D., 2012. Just in Time. Hamphsire: Gower Publishing. Kaplan, R., 2009. Management Accounting, 5/e. New Delhi: Pearson Education India. Kazemi, M., 2012. JIT preemptive single machine problem with costs of earliness/tardiness and work in process. International Journal of Industrial Engineering Computations, 3, pp.321-35. Melton, T., 2005. The benefits of lean manufacturing. Chemical Engineering Research and Design, 83(A6), pp.662-73. Podolsky, S., 1996. Just-in-Time Manufacturing: An Introduction. London: Springer. Shafer, S.M. & Moeller, S.B., 2012. The effects of Six Sigma on corporate performance: An empirical investigation. Journal of Operations Management, 30(7-8), pp.521-32. Taj, S., 2008. Lean manufacturing performance in China: assessment of 65 manufacturing plants. Journal of Manufacturing Technology Management, 2008, pp.55-62. Talha, M., 2002. Implication of JIT on Accounting. International Journal of Society for Human Transformation & Research, 3(2), pp.1094-98. Webb, P.B., 1993. The Challenge of Kaizen Technology for American Business Competition. Journal of Organizational Change Management, 6(4), pp.9-16. Wu, Y.C., 2003. Lean manufacturing: a perspective of lean suppliers. International Journal of Operations & Production Management, 23(11), pp.1349-76. Zamora, E., 1991. The JIT system in selected Philippine Manufacturing Companies. Philippine Review of Economics and Business, 28(1), pp.20-38. Read More