Finance and Accounting Term Paper

Excerpt from Term Paper :

Internet-based applications, commerce, financing and accounting have exposed static IT acquisitions and the operating environments involved require fresh and revised processes and procedures to tackle and solve the vigorous reflux and rush of capacity, function, service, and support conditions. With the continuing increase of data center costs, workloads and more demanding service delivery requirements, IT organizations are looking for more and more innovative procurement and asset management approaches. One such approach to that provides dynamic capacity capability with practical and prearranged budget accountability is the Just in Time (JIT) system. This system alternative helps balance service delivery consistencies, improves dexterity and provides an elastic financial management. The gating factor for most such capabilities is the varied, though rapidly improving server and storage vendor offerings.

The main idea behind the principle of Just in time (JIT) is to exclude the roots of manufacturing waste by getting just the right quantity of raw materials and generating just the right quantity of products in the right place at the right time. This manufacturing management method was first designed, developed and implemented by the Japanese in 1970's. The first company to use this technique in their manufacturing plants was Toyota. Toyota's main interest at that time was to meet consumer demands. Because of the success of JIT management, Taiichi Ohno of Toyota was named the Father of JIT.

After the first introduction of JIT by Toyota, many companies followed up and around mid 1970s', it gained extended support and widely used by many companies.

One motivation for the Japanese for developing JIT and some other better production techniques was that after World War II, Japanese people had a very strong incentive to develop good manufacturing techniques to help them rebuild their economy. They also had strong working ethics, which concentrated more on work rather than leisure. The Japanese pursued continuous improvement and committed their lives to work. The Japanese were group conscious rather than individualistic and worked hard to achieve a common goal. These motivations were what drove and energized the Japanese economy to succeed.

The concept builds on the disciplinary foundations of Materials Requirements Planning II, (MRP II). JIT management introduces innovative manufacturing concepts such as more efficient assembly line layouts, reduced machine setup times, smaller lot sizes, flow operations, grouping of similar operations, team production, and other techniques that streamline the operation and maximize the flexibility of the manufacturing cycle.

This system replaces the traditional push system of manufacturing based on incoming customer orders, or continuous production, with a pull system where one tries to produce only what is necessary, when it is required, using the fewest possible resources and the least possible time. The traditional method fell short in taking into account plant capacities and therefore led to longer and longer lead times as orders were "pushed" onto the shop floor. The result were scheduling problems, material shortages, increasing inventory, need for extra shifts, overtime, and high-cost special delivery methods (e.g., carrier services).

The older, more traditional systems include the Pull and Push Systems. The Pull System represents an alternate way of running an assembly line as compared to the older Push System. The Push System forces a line worker to work as fast as the line worker preceding him. If a problem occurs, it is close to impossible to stop the line and correct the error because the product flow continues at a constant rate. This leads to lower quality products and unhappy workers due to the pressure to keep up and just get their part of the job over with.

The Pull System takes the pressure off workers and allows them to take time to do quality work. A line worker goes only as fast as the person does after him. He is pulled at the right speed. There is a buffer between two stations where one worker places the pieces that are passing to the next station. If the worker sees that the buffer already has, say, three pieces in it, he will stop and wait for the worker after him to remove those pieces. If a problem arises, the line can be stopped simply by the person concerned stopping his/her work. This system gives each worker the time to do a quality job without worrying about there being a pile up in the line.

Many problems arise when this JIT system is introduced against the traditional push or pull systems. In the digital playing field for example, the exchange of information is more convoluted. There are in fact hundreds of specimens of just-in-time delivery of digital information. The networked databases and full-text resources that a business never owns but to which they now routinely license access are all just-in-time exemplars, as are the countless information resources freely available just-in-time via the World Wide Web. The principal direct cost to the business in providing such material is the license, which compensates the rightful 'owner' of the site; the one who handles a bundle of data acquisition and preparation, maintenance, and delivery costs. There is no actual just-in-time digital operation where this cost unbundling is done, and so many have depended instead on the Project Open Book model. That model analyzes cost trends strongly favoring digital storage of and access to information, with crossover points for total storage and access costs happening sometime after the first 10 years. The Project Open Book model is fundamentally an argument that, with regard to the key factors of storage and access, it eventually will be cost effective to stop building local collections altogether and instead buy the information one needs only when one needs it.

More problems with the JIT includes the one that every JIT system sends contributing signals back from the point of sale or send order agendas in advance of expected demand, calling for the exact amount of materials to arrive exactly when they will be needed. Material is "pulled" through the production system based on actual consumption or demand. The problems arise when it is attempted to synchronize the production facilities of the company's suppliers to achieve "just in time" delivery, and to fine-tune the joint systems of delivery. This involves a great amount of manpower and the lower management time involved in handling the items is consumed when handling the workers.

The theory of lower inventories and carrying costs for the company, higher inventory turns, reduced obsolescence, and smaller, more frequent orders are all advantages of the JIT. These in turn create other managerial problems like keeping track of all the orders coming in as there are more orders coming in than in either the push or pull systems or greater loss in items due to breakage. Suppliers act upon more reliable advance orders. And if the suppliers are not able to make the demand, then there becomes a lag in the production line and that is bad for the company and the business.

Burden of inventory has often just been put on the suppliers' backs who must comply with their customers (e.g., GM, Ford, Chrysler) in order to keep their business. This means that just in time is valid only for the customer. Suppliers often have to carry more inventories and incur high transportation and courier costs for "delivery on demand." Geo-graphical proximity to the customer could be one solution to this dilemma but this means again an increase in dependency for the supplier. Idea of the concept ok, but often implemented by powerful customers, acting in their very own interests, trying to improve internal efficiencies. This is yet another disadvantage of JIT systems.

More problems in the JIT system involve lack of management support. In case of the implementation of this plan, significant capital investment and training is required. A lot of concentration is also required on the internal production efficiencies. Sales forecasts…

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