Just in Time Concept in Accounting

Just in Time Concept 

Just in time (JIT) is a technique in management where labor goods and materials are scheduled to be replenished or arrive exactly when they are required for use in the process of production. The concept of just in time involves a process whose objective is to eliminate waste and increase value-added through the provision of an environment that ensures a simplified and perfect process. The initiation of the just in time concept happened in Japan during the manufacturing of the Toyota brand of automobile. According to this concept, manufacturing, and purchasing in a company only commences upon orders made by customers thus resulting in zero inventories (Singh & Singh, 2014). In an environment guided by the concept of just in time, the production and purchase of materials happen as and when they are needed. The basis for the whole concept involves attempts made towards the provision of goods just in time to meet the promise made by a company during the placement of the order by the customer (Basim, 2012). 

The entire concept of the Just in time technique differs from the traditional system of production that has been known to apply the techniques guided by push and pull systems in the process of production. In the absence of the just in time concept, the push system production operates in a manner that ensures that materials are pushed to the next production level without considering the need for time and resources in the production level that follows immediately. This often leads to the availability of a large number of inventories at different stages of production along the process of production. The adoption of the just in time concept by companies has led to a drastic reduction of the inventories that were previously being held as work progressed during manufacturing of products. The basis for the establishment of the just in time concept is the pull technique of production that ensures the total elimination of inventories (Lou et al., 2015). 

Just in Time Accounting 

Just in time accounting revolves around two types of JIT systems which are JIT production and JIT purchasing. JIT production involves a situation where the production of goods commences upon the placement of an order by the customer. In this case, the stock of finished goods does not usually exist and instead the stock of raw materials is the one that usually exists while purchasing usually happens in a normal way. JIT purchasing usually includes one more step in addition to the JIT production and it involves a situation where raw materials are purchased with the aim of using them in the process of production. In this case, the raw material stock is eliminated since the raw materials for production are purchased as soon as a customer places an order. The incorporation of the aspect of just in time into accounting work best in companies that are adequately involved in functions of repetitive manufacturing. Healthcare organizations and other entities such as small companies may not be better placed to utilize the concept of JIT accounting owing to its inadequate feasibility. One of the major objectives associated with the adoption of the concept of JIT accounting is to achieve a reduction of costs by ensuring that just enough inventories are kept to be utilized in meeting immediate needs of productions (Avinadav, 2014). 

As such, appropriate and effective adoption of the concept of just in time accounting requires accurate forecasting of demand by a company. JIT's use in standardization, simplification, and planning is usually meant to ensure a reduction in the carrying costs through the elimination of the expenses that may have been incurred in the storage of inert materials. Moreover, JIT plays a crucial role in enhancing the speed of the process of producing this getting rid of long durations of lead times as well as improving delivery performances (Lou et al., 2015). Companies that adopt just in time accounting often deal with a smaller number of suppliers. Owing to the importance attached to the acquisition of inventory when it is required, few suppliers can facilitate the coordination and effective management of deliveries. Besides, large orders that are normally placed by companies utilizing just in time accounting are important in encouraging suppliers towards becoming committed to quality and delivery requirements. The focus of JIT on efficiency places more emphasis on the identification and rectification of the obstacles encountered in the process of production. Proponents of the introduction of just in time accounting into the inventory management for various companies have often claimed that there a wide range of problems usually associated with the management of inventories in the absence of the JIT concept (Waples & Norris, 2013). 

JIT ensures that a company does not engage in in the use of excess inventory to facilitate operations in a situation where certain tasks take a longer duration that is expected or situation where a defection component is found within the system. Possible indicators of companies that utilize JIT techniques involve ratios of high inventory turnover as well as high ratios of asset turnover. Low inventory balances are an indication that a company's choice regarding techniques of inventory accounting do not a have a significant impact. The system of just inventory accounting ensures that inventory levels are kept low by only allowing the production meant to meet the orders and requirements of specific customers. The outcome of the consideration of the just in time accounting technique in the management of inventories leads to a considerable reduction in the scrap and inventory investment costs which requires a higher degree of coordination. The just in time accounting technique differs from other accounting techniques that are typically applied in several alternatives of handing inventories. The adoption and use of just in time accounting techniques, there is a significant reduction in the need to have raw materials as well as the finished goods inventories (Singh & Singh, 2014). 

Implications of Just in Time Concept in Accounting 

The global business environment characterized by changing tactics and techniques has forced different companies to engage in transformative and more style of growth and development. A considerable number of companies around the globe have been able to adopt the just in time technique to assist in the control and management of their accounting information system. In this way, the implication of just in time technology in the area of accounting plays a crucial role in influencing different accounting entries concerning different techniques of information. Just in time concept often simplifies the information system used in the management of accounting aspects for the operations of a given company. Most systems that are usually used in controlling and managing matters of accounting by companies tend to place more emphasis on the determination of the costs associated with different products for the valuation of inventory (Avinadav, 2014). However, just in time systems are usually characterized by the presence of minimal inventories which reduces the benefits associated with an elaborate system of costing meant for inventory management. In a company where the actual just in time systems are used in the management accounting aspects, overhead, labor and material costs could be incorporated into the cost of products manufactured since the inventories are comparatively negligible. In this respect, the assumption made is that all costs incurred in the process of production are applicable finished products ready for sale to customers. 

Elements of a successful Just in Time Accounting System 

A successful just in time accounting system comprised of three elements. One of these elements is represented by a group of suppliers who are capable of reliably making deliveries within the shortest time possible according to the precise requirements and specifications. This element is also associated with the ability of suppliers to make deliveries relating to raw materials at different centers involved in the process of production. The second one is represented by a group of members of a workforce taking part in the process of production and the involved accounting matters. Under a successful just in time system, instruments of production are strategically positioned to increase the efficiency of production. The third one is represented by the establishment of a quality control system that guides production operations (Basim, 2012). 

Advantages of Just in Time Accounting Technique in the Management of Inventories 

The use of this technique often results in reduced inventory obsolescence because the high rate associated with inventory turnover ensures that all items are prevented from becoming obsolete by overstaying in stock. Considering the short duration nature of production runs, halting the production of a single type of product is easier and more manageable before switching to a different type of product in the process of meeting the demand and preferences of customers in the market. Using this technique in the management of inventories is capable of leading to the minimization of the costs incurred in the withholding of inventory due to the existence of very low levels of inventories (Lou et al., 2015). Furthermore, this technique allows a company to use a considerably low amount of money to invest in its inventory because fewer inventories are required. There is a reduction in the amount of inventory that is exposed to any damages within a company owing to storage-related accidents that may be experienced since they are usually not held for a long time. Moreover, the just in time technique creates a situation where there are fewer inventories thereby ensuring that material handlers have adequate room for maneuvering without a higher likelihood of causing any damages. The other advantage associated with the application of this technique in inventory management is that it allows for the immediate and easy spotting of mistakes in the process of production before being corrected thus reducing the number defective products (Musara, 2012). 

Disadvantages of Just in Time Accounting Technique in the Management of Inventories 

There are certain disadvantages associated with the application of the Just in time accounting technique in managing inventories despite there being several advantages. One of them is that it becomes difficult and more challenging for a supplier to be punctual when it comes to the delivery of goods to a company with the required amounts which could adversely affect the process of production. Additionally, there is a higher likelihood that a natural disaster could cause interferences in the channel followed by the smooth flow of goods from the suppliers to the company thus creating the possibility of halting the production process (Basim, 2012). The use of just in time concept requires additional investments to be made in the area on information and technology to ensure that computer systems are linked to the company including its supplier for the ease and efficiency of the coordination of the delivery of materials and parts. The other disadvantage of using this technique is that it may be unrealistic for a company to meet orders requiring massive products within a short duration due to the insufficiency of stock of finished products (Lou et al., 2015). 

References 

Avinadav, T. (2014). On Real-Time Accounting of Inventory Costs in the Newsvendor Model and Its Effect on the Service Level. Journal Of Service Science And Management , 07 (02), 77-91. doi: 10.4236/jssm.2014.72008 

Basim, A. (2012). Just in time dynamic & cost-effective maintenance (JIT DMAINT) for more reliable production: A case study. Istra?Ivanja I Projektovanja Za Privredu , 10 (2), 107-115. doi: 10.5937/jaes10-2132 

Lou, Y., Wang, H., Chen, J., Vatjanasaregagul, L., & Boger II, E. (2015). Merging Just-in Time (JIT) Inventory Management with Electronic Data Interchange (EDI) Impacts on the Taiwan Electronic Industry. Open Journal Of Accounting , 04 (03), 23-27. doi: 10.4236/ojacct.2015.43003 

Musara, M. (2012). Impact of just-in-time (JIT) inventory system on efficiency, quality, and flexibility among manufacturing sector, small and medium enterprise (SMEs) in South Africa. AFRICAN JOURNAL OF BUSINESS MANAGEMENT , 6 (17). doi: 10.5897/ajbm12.148 

Singh, G., & Singh Ahuja, I. (2014). An evaluation of just in time (JIT) implementation on manufacturing performance in Indian industry. Journal Of Asia Business Studies , 8 (3), 278-294. doi: 10.1108/jabs-09-2013-0051 

Waples, E., & Norris, D. (2013). The Impact of Just-In-Time on the Audit of Purchasing. Journal Of Purchasing And Materials Management , 25 (3), 26-30. doi: 10.1111/j.1745-493x.1989.tb00487.x