JIT Inventory
JIT Inventory
The Just in Time (JIT) inventory system is a modern inventory management system which is used to minimize the holding costs of the inventory to reduce the overall cost of the production. It is the duty of the controller to control all the important activities of the business. The main advantage of Just in Time inventory system is that the inventory is recorded at the market value in the purchase ledgers. By using the JIT inventory system, the recognitions of the purchase cost are always up to date and it assists the management in analyzing the trend of their purchase costs. The valuation of closing stock is an important part of the inventory system and the controller of the business implements several techniques, such as FIFO and Average method to determine the value of the closing stocks. Another advantage of Just in Time inventory technique is that at the end of accounting year there is no closing inventory in the business. When there is no closing inventory in the stocks of the business, then it reduces the work load of the controller in evaluating the value of closing stocks of the business. Therefore, the Just in Time inventory system allow the controller to review other core areas of the business at the end of the accounting year. (Barlow, 2015)
In most of the cases, the competitive environment of the business reduces the profits of the business due to the presence of competitor’s prices in the market. Therefore, in these circumstances a proper financial analysis of the demand of the products and the efficiency of the purchasing department can increase the profitability via reducing the purchasing costs and inventory holding costs. The controller of the business can perform financial analysis of the sales and the demands of the product in the market by using the historical data of the business. Moreover, the historical data of the competitor’s sales can increase the reliability of the financial analysis. On the basis of financial analysis of historical data, the controller of the business must maintain the minimum level of inventory to maximize the sales. By keeping the minimum level of inventory will keep the holding cost of inventory at the lower levels. However, in the case of JIT method, the ideal inventory is ‘no inventory’, but to maintain a competitive advantage, the controller must have a minimum level of inventory to avoid stock-outs. (Barlow, 2015)
It is the responsibility of the controller to control the quality and prices of the raw material purchased for the purpose of production. The relationship between the business and the suppliers is an important part of the good supply management system. The Just in Time inventory system has very low or no inventory in the stocks, therefore, it is very important for the controller to make sure that the supplier will supply the raw material when it is needed. Moreover, the controller must inquire in the market and look for new suppliers with more efficient and cheaper rates to enhance the profits and the productivity of the business. (Barlow, 2015)
It is the duty of the controller to direct the operations of the human resources department of a business. In the inventory system of JIT, it is very important for the labor and other employees of the business to understand the requirements of the customers and the quality of the products. Moreover, the skills of the labor are a key element in the manufacturing of the highest quality products quickly with low percentage of wastages. The unskilled labor can delay the production in the production department of the business and any delay can cause problems for the business. Moreover, the wastages of raw material can increase the cost of the raw material. Therefore, in these circumstances, the controller must explain the human resource department to hire the labor of required skills. Moreover, the human resource department must arrange the seminars and the workshops to enhance the skills of the labor to meet the requirements of Just in Time methodology. The controller must explain the requirements of the products and the importance of the communication between the different departments of the company. In case of any delay in the processing in one department will affect the processing in the other departments. Therefore, the effective communication between the departments is important in the Just in Time inventory management system. (Kokemulle)
The element of IT and computers can increase the efficiency of the Just in Time inventory system because if the computers are properly installed and maintained, then the management can get vital information at the right times. It is the duty of the controller to check the efficiency of the online selling system of the business. For example, the controller can place a sample order without making any payments. If the software of the computer approves the order, then the software is not working properly. It is very important for the controller to maximize the restrictions on the computer systems and the online orders should be authorized from the senior employee before actual production. (Nayab, 2013)
References
Barlow, P. (2015, August 28). Just in Time (JIT) Advantages and Disadvantages – Babington
Group. Retrieved February 15, 2016, from https://www.babington.co.uk/blog/accounting-blog/just-in-time-advantages-and-disadvantages/
Kokemulle, N. Advantages & Disadvantages of Just-in-Time Inventory. Retrieved February 15,
2016, from http://smallbusiness.chron.com/advantages-disadvantages-justintime-inventory-21407.html
Nayab, N. (2013, June 30). The Benefits of JIT: Why Use JIT For Controlling Costs, Reducing
Waste, and Improving Customer Relationships. Retrieved February 15, 2016, from http://www.brighthubpm.com/monitoring-projects/72083-why-should-you-use-jit/
