The modern day organizational management has been characterized by the presence of numerous factors both internal and external which make the running of the organizations a more complicated act than ever before. There are many factors that influence the nature of decision making in the organization (Alnoor, 2003). The main aim of an organization being profit, one of the main areas of interest among the managers is the act of cost management through effective and efficient operations management.
While financial accounting deals with external reporting, the cost and managerial accounting deals with internal reporting. Internal reporting deals with the provision of reports that are useful for the decision making among the cost managers (Ahmed, 1992). It focuses on managing the costs through practicing of efficiency in operations as well as ensuring that the entire organization focuses on the achievement of the set goals and objective (Antony & Robert, 2011). This paper discusses the concept of the Just-in-Time inventory management. It further discusses the advantages and disadvantages of JIT and provides a conclusion on the viability of the use of the system in the modern day business world.
The concept if JIT
The issue of inventory control has been of keen interest among many business managers. All business organizations specializing in the goods market get their income from the sale of the stock. The stock is referred to as inventory and the management of the inventory is vital in ensuring that cost is managed in an effective way. Effective management of the stock leads to minimization of costs and hence maximization of the profits.
The Just-in-time inventory management is a managerial stock inventory system where the production and sale of goods happens on demand. The goods are only produced once the customers demand and order for those particular goods (Barry, 2003). This is seen as a revolution from the traditional inventory management where the goods are kept in the custody of the seller while they wait for potential and unidentified buyers. The Just-in-Time, as the name refers therefore posits that the goods are only produced when the demand for those goods arises.
In this manufacturing system the inventory is almost zero or reduced to its minimum as the production only happens on demand. This method is applied in both the manufacturing and merchandising companies. The rise in the Just-in-Time production method has therefore brought about a huge change in the inventory control system. Ensuing is a discussion of the advantages and the disadvantage of Just in Time inventory production system.
Advantages of JIT
Just in time has been known to enhance the liquidity of companies through efficient allocation of cash to the various cost centers when the need arises. This is so because production happens only when there is a demand for the products. Cash is only used in production when the demand for particular product is raised and as such, the organization is able to ensure that its finances are not tied in the inventory therefore enhancing the liquidity. An organization is therefore allowed to allocate its cash to other urgent cash demands and this helps in increasing the liquidity position of the company (Frederick, 2001).
Since this system reduces the inventory in an organization, the space that would otherwise be used to store the inventories is given out to other uses. This can also act as a cost cutting technique since the cost of holding the inventory is reduced. More productive uses can be found for these spaces (Garrison, Noreen, & Brewer, 2012).The Just-in-Time inventory system also results in fewer defects on products. This is because of the fact that the system only allows materials for a current order by the customer. As such, the workers are keener on the efficient use of the materials. This results in greater customer satisfaction. A satisfied customer is an almost assurance of a repeat purchase from the same customer and therefore more revenues in the future.
This system also ensures a quick response to customer concerns and a great output potential. This is a vital aspect of the modern day business operation where the customers ought to be given the top priority. It also offers a marketing tool for the company when dealing with future orders.
Disadvantages of Just-in-Time
While the advantages of the Just in time provide a blueprint of how modern day organizational leaders ought to practice the inventory control, the system has several shortcomings. The adoption of the Just-in-Time system in an organization usually presents a supply chain problem within an organization. This is because there are virtually no inventory to lean on in case of unpredicted disruption of supplies.
This method is expensive in that the finished goods are priced are at a premium. Not many consumers are able to meet afford some of these goods and this leads to low sales turnover. The Just in time may also lead to customer dissatisfaction more so when the promise has not been delivered as expected. This method also requires a lot of resources both human and financial. These resources may not be readily available and as such delays may be experienced in production.
While traditionally business managers used to forecast the possible need for cash, the modern day management entails effective stock management. Companies should therefore attempt to embrace the Just in Time system of stock management. This would not only save on costs but also increase the efficiency in operations. The JIT is therefore a big idea that more businesses ought to adopt.
The inventory controls among the organization should also be improved to reflect on the latest advancement in the field of business managers. Companies will be able to cut on costs, improve the quality and work on more specified customer requirements. This is a sure way to enhance the success of the company.
The ‘Just in Time’ has gained tremendous recognition among many organizations and huge companies such as Toyota use this system of Just in Time. The saving on costs and thus increasing of profits is one key area in the management of the organization and the owners of the organization should fully explore the possibility and the viability of the Just in Time.
Through this system, inventory is considered ‘evil’ and as such businesses ought to operate with minimum inventory or none at all. Goods completed are immediately shipped or transported to the customers. The business management therefore ought to make such decisions that positively affect the organization and enable the organization to be run in a more conscious and rational manner.
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Alnoor, B. (2003). Management Accounting in the Digital Economy. Oxford: Oxford University Press.
Antony, A. A., & Robert, S. K. (2011). Management Accouting: Information for Decision-Making and Strategy Execution. New York: Quorum Books.
Barry, E. L. (2003). Management Accounting Demystified. New York: McGraw Hill.
Frederick, B. (2001). Executive Strategy: Strategic Management and Information Technology. New York: John Wiley & Sons.
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2012). Managerial Accouting. New York: McGraw Hill.