Just-in-Time (JIT) Philosophy Explained

JIT is a system whose objective is to produce or to procure products or components as they are required by a customer or for use, rather than for inventory.

JIT is a ‘pull’ system, which responds to demand, in contrast to a ‘push’ system, in which inventories act as buffers between the different elements of the system, such as purchasing, production and sales.

JIT aims to achieve (a) zero inventory and (b) perfect quality.

JIT operates by demand-pull.

JIT consists of JIT Purchasing and JIT Production:

• JIT Purchasing is a System in which material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide.

• JIT Production is a System which is driven by demand for finished products whereby each component on a production line is produced only when needed for the next stage.

JIT results in lower investment requirements, space savings, greater customer satisfaction and increased flexibility.

JIT is often described as a technique, but it is more of a philosophy or approach to management since it encompasses a commitment to continuous improvement and the search for excellence in the design and operation of the production management system.


Problems associated with JIT

(a) It is not always easy to predict patterns of demand.
(b) JIT makes the organization far more vulnerable to disruptions in the supply chain.
(c) JIT, originated by Toyota, was designed at a time when all of Toyota’s manufacturing was done within a 50km radius of its headquarters. Wide geographical spread, however, make this difficult.


Costing implications of JIT

(a) Just-in-Time manufacturing enables purchasing, production, and sales to occur in quick succession with inventory being maintained at minimum levels.
(b) The absence of inventory renders decisions regarding cost-flow assumptions (such as weighted average or first-in, first-out) or inventory costing methods (such as absorption or marginal costing) unimportant. This is because all of the manufacturing cost attributable to a period flow directly into cost of goods sold.
(c) Job costing is simplified by the rapid conversion of direct materials into finished goods that are then sold immediately.


(source: BPP Learning Media)



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