Essentials of Management Accounting

MAC-2-EMA

Faculty of Business

Unit Coordinator: Mr. Andrew Wilkinson

Room LR392

1. - Explain the features of the Just in Time system and its alleged advantages and disadvantages

   2. - Critically examine the alleged advantages of traditional budgeting    

Jose L. Lara

2712473

Explain the features of the Just in Time system and its alleged advantages and disadvantages

Just in time production occurs when firms produce products to order. Instead of producing as much as they can and building up stocks, firms only produce when they know they can actually sell the items. Similarly, a firm as and when they are needed only buy in components and supplies.

The aim of Just in time production is to reduce a firm’s stock levels by as much as possible, in an ideal world there would be no stocks at all. Supplies would arrive and be used to produce items that are sold immediately to the final customer. A Just in time approach should provide a firm with tremendous flexibility; firms produce what is required, when it is required. In the past, firms have tended to try and estimate what demand would be and produce this amount in advance of actual sales. The system works provided demand has been estimated correctly.

Just in time production should also reduce costs. With no stocks, the firm does not have to pay for warehousing or security. The firm also avoids the opportunity cost of having money tied up in stocks.

Just in time production should help minimise wastage. If goods are produced and left to accumulate as stocks, they are likely to get damaged, to depreciate, to go out of fashion or be stolen. Just in time avoids these issues. Just in time production produces goods to order, thereby minimising stock levels.

However, introducing a Just in time system is complex and places many demands on a business, as explained below.

Excellent relationship with suppliers

Businesses need to be able to rely on suppliers to deliver goods at precisely the right time. They cannot afford delays as this halts production. Also, the goods must be perfect quality: the manufacturer has no stocks to replace faulty supplies. A firm must be able to trust its suppliers completely.

Reliable employees

Because the business does not have many (if any) stocks at any stage of the process, the firm cannot cope with stoppages. If strikes occur, for example, the whole production process stops. A business cannot supply customers using stocks as none exist. Just in time production relies upon maintaining a good relationship between employers and employees.

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A flexible workforce

To ensure that production can respond to demand, a firm needs flexible labour force. This means that, if someone is ill, another employee must be able to cover for them or that, if demand is high in one area of the business, people can be moved to that area to help out. Firms using Just in time expect employees to be ready to work anywhere, anytime. People must change to meet the demand for different products because Just in time production is focused entirely on matching supply to customer orders.

Introducing Just in time production ...

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