The manufacturing company for which you currently serve as plant controller is contemplating moving from a conventional manufacturing layout to a just-in-time (JIT) system. The overall strategy is to improve manufacturing operations, thereby enabling the company to compete more effectively in an increasingly competitive environment. As a member of the decision-making team, you have been asked to provide input regarding the decision at hand.

Required

Prepare a memo for management in which you address the following issues:

1. Comment on the relative costs and benefits of adopting a JIT manufacturing strategy.

2. For which type of companies, from a competitive standpoint, would the adoption of JIT be most useful? Why?

3. Define the term processing cycle efficiency (PCE). Given the estimated data below, calculate the PCE for your plant under the existing manufacturing layout and after the proposed implementation of JIT:

	Time (Hours)
	Current System	After JIT Implementation
Activity
Storage	3.00	1.00
Inspection	0.67	0.13
Moving	1.25	0.33
Processing	2.00	1.25

4. Distinguish between value-added time and non-value-added time within the present decisioncontext.

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1. In a JIT system, a good or service is produced or delivered only when a custom er requires it. JIT production requires a product layout with a continuous flow once production starts. Underlying the JIT system is a continuous improvement philosophy of eliminating or reducing delay, error, and waste, such as materials movement, storage, rework, and waiting time. In a typical JIT system, all types of inventorie:s (raw materials, work-in-process, and finished goods) are minimized. In such an environment, managem ent might anticipate the following b enefits, both financial and non-fin ancial in nature: (a) Reduction in inventory-hol ding costs, both out-of pockets (e.g., insurance, property taxes, obsolescence, storage costs) and opportunity costs (financing costs as sociated with inventory holdings) (b) Reduction in inventory-tracking and clerical costs (i.e., labor cost savings) (c) Significant improvements in output quality (i.e., reductions in internal and external failure costs and improvements in non-financial indicators, such as defect rates, waste, spoilage, cycle time efficiency, and custom er response times) (d) Increased sales because reductions in production cycle time enable a company to win customers by cutting the delivery time (e) Reduction in the number of workers needed to move materials from one area to another (including moving materials into and out of storage), due to close proximity of manufacturing processes and redu cti on in work-in-process (WIP) inventory levels To achieve the afore-mentioned benefits, management might anticipate the following costs associated with the implem entation of a JI"T manufacturing appro ach (a) Process reorganization costs-plant layout(s) would likely need to be reconfigured to accommodate the smooth and efficient processing of outputs (out-of-pocket costs associated with moving and reinstalling machinery, plus the purchase cost of new machin ery and equipment, can be significant "start-up" costs associated with a new factory layout) (b) Worker education/training costs-at the heart of a successful JIT system is a knowledgeable and well-trained workforce these individuals are expected to carry out production activities using the highest standards of qualitjy (c) Revision of Management Accounting System: the organization's man agement accounting and control system would most likely have to be revised to help support the move to JIT manufacturing. That is, the accounting system should monitor, identify, and report to management sources of manufacturing process delay, waste, and inefficiency. Some examples of relevant perform ance in dicators in a JIT environment include the following: cycle times, defect rates, order accuracy, actu al produ ction as a percentage of planned producti on, actual machine time available relative to planned machine time available. % first-pass yield, defect rates, and parts-per-million (ppm) defects 2. It is not clear that this question has a clear-cut answer. On the one hand, the cost savings associated with the implementation of a JIT system (see answer to question 1, above) suggest that companies competing on the basis of cost (i.e., low-cost producer) would benefit most from such a system. On the other hand, it is clear that improvements in quality and customer response time, both of which are typically associated with JIT m anufacturing, could be key differentiators for a company. That is, companies that compete on the basis of time an d/or quality may benefit most from the introduction of a JIT system. This may be one case where such a system provides benefits to most if not all companies