Managerial Accounting Issues - Case Study Example

Just – In –Time: Toyota Introduction: Just – In – Time (JIT) is a recent strategy of inventory management to reduce the carrying costs and the in progress inventory, and also increase the return on investments. This method has been developed to help companies use its investments carefully and appropriately. This was firstly used by Ford Motor Company in 1923 by Henry Ford. This report aims at understanding the process of JIT in the context of a real company. The company chosen for this report is Toyota Motor Cooperation. The next section will provide a brief history and introduction to the JIT process. Following which it will be discussed how the company has implemented this strategy in the day – to – day working. Just – In –Time: As mentioned earlier JIT was firstly introduced by Henry Ford and was clearly described in his book ‘My Life and Work’ in 1923. It was then that Henry Ford had realised that inventory stocking was a waste of investments in terms of the amount locked up in forms of inventory as well as storage and transportation costs. The JIT process is simple and defines stocking of goods to be a waste. Companies using this method follow the thumb rule of ordering for stocks whenever it is required by the company. This process exposes the hidden costs that the company incurs for storing and transporting of the inventories. The process might seem simple however when it comes to incorporating it into the daily business, the companies face a number of issues as it would mean completely changing the process flow of the company. There are a number of different disciplines that are followed to ensure the correct timing for ordering the goods to fit in correctly into the process flow of the company. This process involves aspects of statistics, behavioural science, production management and industrial engineering. In simple terms JIT is a process ensures that the inventories of a company are available at the right time, at the right place, the right amounts and finally the right materials (Sandras, 1989). Toyota Motors Cooperation: Toyota is one of biggest motor company in the world. The company has been existent from times before the first ever air conditioner, colour television and even the first ever cheese burger was invented. It was started way back in 1934, where the first engine was produced by the company. It was later in 1935 that the first car was produced. In 1937 the company was split off. The company’s production was very limited between the years of 1936 -1945. The company however picked up motion in 1945 and the production was seen to grow rapidly since then. It was now that the company had taken permission from the US military to star up on the basis of peacetime production. As mentioned earlier, the company started to grow post 1945 and it was in 1957 the company set up its first headquarters in Hollywood. The company was now moving towards international sales and a global expansion. The company very slowly and gradually worked its way to success. It was in 1957 –October 31st that the Toyota Motor Sales, USA, Inc. was established. After almost 15 years the company started its manufacturing operations in the US. Since then the company has grow a lot and has opened a number of manufacturing unit around the world. The company has a global presence and it is recognised and respected around the world (Toyota, 2008). Toyota Motors Cooperation and JIT: Toyota has been recognised by all engineers and analyst as a company with the highest efficiency, productivity and quality of product. Despite the fact that other leading companies like Mercedes – Benz, Honda, Daimler Chrysler etc with the most high technologies and engineering techniques, Toyota is still taken an upper hand based on the efficiency and effectiveness. It was in 1990s that around fifty executives and engineers for the various automobile companies world wide visited Toyota Motor Company at Georgetown to understand and study the Toyota production system. The production process of the company has been built on two main principles: Just – in – time and Jidoka. Jidoka is a defect detection system that automatically or manually stops the production where any errors have occurred or detected. This is a system which allows the company to put faith in its workers make the decision of stopping the line if they feel it appropriate if an error is detected. The Just - In – Time Process has been used within the company not only for the manufacturing but also in the product development, supplier relations and even distribution. Toyota’s success is based much on the fact that the JIT has been implemented in the business. Toyota has designed its production system based on one simple question – ‘What does the Customer want from this process?’ The company places a lot of emphasis on the value to be provided to the customers. To do this Toyota has designed its production system with value added steps and has eliminated almost all the non – value added steps. It has been commented by a number of analyst that no other automobile marker would be able to make their production system as effective as Toyota. There have been comments from officials of General Motors, that Toyota has created a benchmark for manufacturing and product development (Japan Management Association, 1986). Toyota’s principle is to have parts just as they are needed. Not only does this avoid capital being stocked up unnecessarily, but also helps in ensuring the engineering is more reliable and functional. This is because any changes in engineering can be made easily and quickly as the stockpiles of parts do not require to be cleared out. Any problems found in a part can be quickly detected and changed to ensure complete safety and accuracy of the product. Toyota has learnt from the mistakes of Ford, where Ford lacked in humanitarian issues and did not respect the employees’ efforts. The company did not allow employees to use their knowledge or expertise in the process. Toyota on the other hand has ensured that the employees are given the freedom to choose between what they felt was important for the process to be improved. Toyota has developed a team of engineers and a cellular manufacturing. The company focuses more on the people of the company rather than on machinery. This allows the company for more flexibility and innovativeness. The implementation of the Just – in – time for Toyota has been one of biggest and most appropriate decisions that have been made. The early implementation has helped the company in a number of ways. It has led the company to huge success and has helped the company respond to customer needs and offer high quality products at the lowest possible costs, all this with the main intention of allowing complete customer satisfaction (Liker, 2003). Conclusion: Toyota as mentioned earlier has used the technique of JIT in all aspects of its business to ensure all the extra and non value added costs are completely eliminated from the cost of the final product. This is mainly because of the fact that no customer would want to pay for any cost that a company incurs which is in no way beneficial for the product, eg. Storage of inventories, transportation costs for goods etc. Thus the implementation of JIT has proved to be a very smart and strategic decision made by the company way back in the future. Toyota’s main advantage has been the fact that the company has learnt from the mistakes made in Ford and has ensured that the same mistakes are not made within the company. Now the Toyota process has been recognised as the world’s best process and the company is known to be the leading automobile manufacturer throughout the world for its effective, efficient and quality products and processes. Bibliography Japan Management Association, 1986, ‘Kanban Just-in-Time at Toyota: Management begins at workplace’, 1 April 1986, Rev Sub edition, productivity Press Liker, J.K., 2003, ‘The Toyota Way’, 1st edition, 17 December 2003, Tata McGraw Hill edition Sandras, W.A., 1989, ‘Just-in-time Making it happen: Unleashing the power of continuous improvement’, 1 March 1989, Wiley Publishers Toyota, 2008, ‘Timeline’, Accessed on 7 December 2008, Retrieved from http://www.toyota.com/50th/ Read More