The Mini Motor Home Manufacturing Firm In Kalamazoo Accounting Essay

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The decision regarding the adoption of Just in Time approach in an organization is a multifaceted process involving the evaluation of various parameters surrounding the post implementation implications of JIT. While small manufacturing firms involved in the manufacturing of such products whose components are primarily sourced from external suppliers may find it difficult to implement the principles of JIT in its entirety, the estimated outcomes from the adoption of JIT may provide benefits that may surpass the difficulties identified. This essay aims at "Evaluating the Implications of the Adoption of JIT approach in a Mini Motor Home manufacturing firm in Kalamazoo". This research study is intended to identify specific parameters that would provide justification for the decision regarding JIT implementation in the organization.

Analysis

The concept of JIT revolves around ensuring that the required item is made available at the right time and in the right quantity / form by means of which the cost of inventory may be highly minimized. An approach made with this concept is a perpetual combination of the objectives of high quality, low cost, delivery dependability and the flexibility of manufacturing. Apparently, these objectives have been known to possess a conflicting characteristic which makes them a subject of high speculation when the implementation of JIT is considered (A. Gunasekaran, 1997). The introduction of JIT in organizations not only requires physical implementations to be made, but it also requires adequate training to be provided to the staff for enabling them to understand the concepts of this philosophy as applicable in their organization. Using JIT in logistics requires harmony to be established among the components which include customer service, inventory management, order processing, and the management of the implemented transportation system (Agarwal, 2010).

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A survey conducted on small Chinese manufacturing firms by (Lee) has thrown light on the difficulties of the implementation of JIT which are faced commonly by similar small scale manufacturing firms. These difficulties are based on organizational size where the manufacturing firms are faced with lack of adequate bargaining power with the suppliers and lack of required capital. Both of these factors make the implementation of JIT a difficult choice for the firms considering the amount of investments which need to be made to operate within the paradigms of JIT. In order to implement the JIT system while minimizing the subsequent increase in investments, these firms had shifted their focus on managing internal changes for reducing inventory, increasing participation of the workforce and improving the overall quality standards. The analysis of this scenario reveals the fact that real world implications would require such small manufacturing units to implement and achieve single components of the JIT system one at a time rather than attempting to implement the entire system together. These individual components are beneficial in themselves and the achievement of each component individually would enable the organization to manage the subsequent costs associated with their implementation.

(Hassan Younies et. al, 2007) have identified that the JIT implementation costs considered from an accounting perspective offers misleading indications regarding the possible benefits of JIT. Accountants have not been able to provide the required information for exercising control over the implemented JIT system. The capital appraisal methods applied by accountants to identify the investments required to be made for the system undermine the potential of the JIT system by ignoring its benefits. As per the current systems of costing, the allocation of machine and labour hours is done in a manner which encourages organizations to undertake maximum production outputs in order to recover overheads. Moreover manufacturing units have been known to organize their production processes into cost generation centres with each centre competing to generate maximum revenues. In this process, defective products are often overlooked in order to ensure the flow of outputs. All of these measures are in direct violation of the principles of JIT and go on to prove that standard applications of accounting techniques are insufficient to prove or disprove the implementation of JIT in an organization. An organization is benefited from JIT gradually with each component bringing about an improvement in time.

Purchasing made through the JIT implementation needs to be integrated with an increase in the direct traceability of stated costs, reduction in the quantity of cost pools and laying emphasis on total operational costs rather than focusing on individual costs. (Hassan Younies et. al, 2007) have suggested that US accounting systems are excessively financial reporting oriented with the internal reporting being ignored by the accountants. This lack of information is a major hindrance in the decision making process concerning the adoption of JIT systems in organizations. In order to truly justify the decision regarding JIT implementation, adequate evaluation must be made on non financial perspectives along with specifically targeted JTI oriented acconting to understand the implications of the system accurately.

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As per the statistics provided for the current system of the firm in Kalamazoo (refer to Appendix A for the copy of the mentioned statistics), the total annual costs of maintaining the components inventory under the present implemented system is $96, 175. However the data is a 10% sample taken randomly from the population, the annual costs of total inventory parts would be $961,750 considering the sampling percentage. When considering an inventory carrying cost percentage of 20% p.a., the carrying costs for the inventory component are $192, 350. With these calculated values, the total annual maintenance cost for the inventories is $1,154,100T. The statistics provided for the components inventory under the JIT implementation (Please refer to Appendix B for the copy of the mentioned statistics) indicate a total annual inventory maintenance cost of $1,292,824 (assumption - no safety stocks). As per the JIT system, the unit costs and freight charges exhibit increased values owing to the need for maintaining minimal stocks / inventories. On comparing the inventory maintenance costs for the present system and the JIT implementation, it is revealed that the current system incurs a weekly cost of $22,194.23 while the JIT system is expected to incur a weekly cost of $24,862. This clearly indicates that the implementation of JIT in the manufacturing firm would lead to high investments being made. The carrying cost at which the current system and the JIT system would have similar costs is calculated to be 167%. This is an astronomical value which would be highly critical for both systems (Strategic and Financial Logistics, 2013).

Conclusion

JIT implementations for small manufacturing firms are difficult owing to the lack of adequate bargaining power with suppliers and the lack of required capital to meet with the expenses associated with the system. They are also discouraged by limited financial reporting done for the costs incurred by the system. Not only does this restricted financial perspective hide the benefits of JIT from the management but it provides them a negative perception of the implementation of JIT. By "Evaluating the Implications of the Adoption of JIT approach in a Mini Motor Home manufacturing firm in Kalamazoo", it was revealed that the cost of JIT implementation would incur higher costs in comparison to the current system with carrying cost at which the current system and the JIT system would have similar costs being calculated as 167%. The best approach in this situation for the Mini Motor Home manufacturing firm at Kalamazoo would be to implement and achieve individual JIT components to manage the investments associated with it.