1.Just-in-Time Principles

1
Power Notes
Chapter M11
Cost Management for Just-in-Time Manufacturers
Learning Objectives

• 1. Just-in-Time Principles
• 2. Applying a Just-in-Time Approach
• 3. Accounting for Just-in-Time Operations
• 4. Accounting for the Costs of Quality

C11
2
Just-in-Time Principles
Just-in-Time Manufacturing
Traditional Manufacturing

• Reduces inventory
• Reduces lead time
• Reduces setup time
• Emphasizes product-oriented layout

Increases inventory to protect against process
problems Increases lead time to protect against
uncertainty Disregards setup time as an
improvement priority Emphasizes process-oriented
layout
3
Just-in-Time Manufacturing
Traditional Manufacturing

• Emphasizes team-oriented employee involvement
• Emphasizes pull manufacturing
• Emphasizes zero defects
• Emphasizes supplier partnering

Emphasizes work of individuals, following manager
instructions Emphasizes push manufacturing Toler
ates defects Treats suppliers as arms-length,
independent entities
4
Reducing Lead (Throughput) Times
Start of production for a single item
End of production for a single item
Conversion Time
Wait Time
Move Time
Down Time
Nonvalue-added
Value-added
Total Lead Time
5
Traditional Operations
Technical Offices Design Scheduling Manufacturing
Administrative Offices Accounting Sales Customer
Service
Maintenance and Tooling
Receiving and Raw Materials Inventory
Stamping

WIP
Finished Goods Inventory
Forming
Punching
Shipping Department


WIP
WIP

Work in Process Areas
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Just-in-Time Operations
Technical Offices Design Scheduling Manufacturing
Administrative Offices Accounting Sales Customer
Service

Maintenance and Tooling
Small covers
Shipping

Maintenance and Tooling
Medium covers

Maintenance and Tooling
Large covers
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Quality Control Activity Analysis
Quality Control Activities Activity
Cost Classification
Rework 380,000 Internal failure Warranty
work 225,000 External failure Disposing of
scrap 195,000 Internal failure Disposal of
rejected materials 160,000 Internal
failure Processing returned materials 150,000 Exte
rnal failure Finished goods inspection 140,000 App
raisal Preventive maintenance 80,000 Prevention Ma
terials inspection 70,000 Appraisal Design
engineering 55,000 Prevention Assessing vendor
quality 45,000 Prevention Total activity
cost 1,500,000

• Internal failure
• External failure
• Internal failure
• Internal failure
• External failure
• Appraisal
• Prevention
• Appraisal
• Prevention
• Prevention

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Value-Added / Nonvalue-Added Activity Analysis
Quality Control Activities Activity Cost
Rework 380,000 Warranty work 225,000
Disposing of scrap 195,000 Disposal of
rejected materials 160,000 Processing returned
materials 150,000 Finished goods
inspection 140,000 Preventive
maintenance 80,000 Materials inspection 70,000
Design engineering 55,000 Assessing vendor
quality 45,000 Total activity cost 1,500,000
Nonvalue-added 1,110,000 74
Value-added 390,000 26
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Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Rework
Activity Categories
10
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Warranty work
Activity Categories
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Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Disposing of scrap
Activity Categories
12
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Disposal of rejected materials
Activity Categories
13
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Processing returned materials
Activity Categories
14
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Finished goods inspection
Activity Categories
15
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Preventive maintenance
Activity Categories
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Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Materials inspection
Activity Categories
17
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Design engineering
Activity Categories
18
Pareto Chart of Quality Costs
400,000 350,000 300,000 250,000 200,000
150,000 100,000 50,000 0
Costs
Assessing vendor quality
Activity Categories