978-1111971724 Kinney 9e IM Ch 18 Lecture Note Part 2

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a. A primary objective of JIT is reduction of machine setup time, which allows processing to

rapidly shift among different products at a lower cost.

i. Increases in initial setup time and cost have been found to be more than recovered by

the savings from reduction of downtime, work in process inventory, and material handling

as well as increasing safety, flexibility, and ease of operation.

essential part of JIT product processing.

c. The ability to standardize work so that every worker performs according to stated procedures

5. Plant layout

a. The physical plant is arranged in a way that is conducive to the flow of goods and the

b. Manufacturing cells are S or U-shaped production groupings of workers or machines.

i. The cells reduce inventory storage, improve material handling and flow, increase

ii. A streamlined design allows more visual controls to be instituted for such problems as

c. Text Exhibit 18.10 (p. 741) illustrates the flow of three products through a factory before and

d. Multiprocess handling is the ability of a worker to monitor and operate several (or all)

e. Autonomation is the use of equipment that has been preprogrammed to sense certain

conditions.

i. Autonomation derives from the principle of “jidoka” in Toyota’s lean manufacturing

H. Logistics of the JIT Environment

1. Logistics

a. In a JIT environment, a certain degree of logistical assistance is developing in the areas of

b. The six-sigma method is a high-performance, data-driven approach to analyzing and solving

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i. The five steps to the method include: defining the projects and processes that need

improvement; identifying appropriate measurements for success; gathering and analyzing

data to ascertain how the organization is working to achieve its goals; designing and

instituting improvement projects; and implementing control measures to sustain

performance.

c. The Internet business model is a business model which involves few physical assets, little

management hierarchy, and a direct pipeline to customers.

d. Supply-chain management is the cooperative strategic planning, controlling, and problem

transactional, information-sharing, and collaboration.

 Transactional relationships include the use of electronic data interchange to

automate such things as purchase orders and invoices.

 At the information-sharing level, firms might exchange production schedules or

details on the status of orders.

performance.

i. The software can be used to observe the important interactions and dependencies that

exist in organizational systems and allow the testing of equipment reconfigurations,

distribution channel changes, and quality enhancement programs.

i. A focused factory arrangement may involve relocation or plant modernization by the

vendor, and financial assistance from the JIT manufacturer might be available to recover

such investments.

ii. The vendor benefits from long-term supply contracts.

2. Accounting Implications of JIT

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a. Variance reporting and analysis in JIT systems essentially disappear since most variances

first appear in a physical (rather than financial) fashion.

i. JIT requires that variances be recognized on the spot so that causes can be determined

and, if possible, rapidly removed.

iv. The ability to control material quality is provided by the ongoing use of specified vendors,

so that little or no material usage variances should be caused by substandard materials.

v. The JIT system is stopped when defects are encountered; the error causing an

unfavorable material usage variance is then corrected.

caused by an ECO.

vii. Labor variances should be minimal if standard rates and times have been appropriately

set.

viii. Direct labor and factory overhead costs should be recorded in a Conversion Costs

account under JIT.

only when and as production occurs.

x. Individual daily accounting for production costs is no longer necessary because all costs

should be at standard, and variations will be observed and corrected almost immediately.

xi. Fewer costs need to be allocated to product because more costs can be traced directly to

their related output in a JIT system.

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i. Fewer costs will need to be arbitrarily allocated to products since more costs can be

traced directly to their related output in a JIT system.

system.

iv. Journal entries illustrating backflush costing are provided in text Exhibit 18.12 (p. 746).

LO.7: What are flexible manufacturing systems?

c. Flexible Manufacturing Systems and Computer-Integrated Manufacturing

prompt responsiveness to changes in production needs.

iii. Text Exhibit 18.13 (p. 748) contrasts the dimensions of a traditional manufacturing

system with a flexible manufacturing system.

iv. An FMS can operate in a “lights–out” environment and never tire since the need for direct

labor is minimal.

manufacturing environments.

 Managing manufacturing cells requires that workers have greater authority and

responsibility because production and production scheduling changes happen so

LO.8: Why are lean enterprises important in today’s business environment?

d. Lean Enterprises

i. Lean manufacturing refers to making only those items demanded by customers and

making those items without waste.

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ii. Lean manufacturing originated in post-World War II Japan where managers of Japanese

enterprises developed practices that minimized waste and consumption of resources.

iii. The lean enterprise wields many of the management tools discussed earlier in this

chapter such as cellular manufacturing, JIT, six sigma, TQM, and team-based production.

iv. Central to the success of the lean enterprise and its value chain are leveraging

technology and training employees.

v. Some of the performance benefits from implementing lean practices are shown in text

Exhibit 18.14 (p. 749).

LO.9: How can the theory of constraints help in determining production flow?

I. Theory of Constraints

1. The theory of constraints (TOC) is a method of analyzing the bottlenecks (constraints) that

b. Bottlenecks are points at which the processing levels are sufficiently slow to cause the other

2. Constraints will always exist, even in a totally automated process, because all machines do not

3. See text Exhibit 18.15 (p. 750) for a simplified illustration of a constraint in a production process.

Machine constraints also impact quality control.

4. Managers normally choose quality control points to follow the completion of some particular

process.

constrained processes.

cannot be recovered.

5. As soon as constraints are known, a company should make the best use of the time or productive

capacity the constrained processes provide and limit the constraints’ impact on performance.

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LO.10: (Appendix) How are economic order quantity, order point, and safety stock determined and

used?

J. Economic Order Quantity and Related Issues

1. The concepts of economic order quantity and economic production run are used, respectively, for

purchasing and manufacturing decisions.

K. Economic Order Quantity

1. General

production and inventory management systems.

c. Acquiring and holding inventory before it is needed is incompatible with “pull” systems such

as JIT.

C

2QO

EOQ 

where EOQ = economic order quantity in units

Q = estimated annual quantity used in units

O = estimated cost of placing one order

the lowest cost is not necessarily the best supplier.

ii. Purchase cost does not affect ordering and carrying costs, except to the extent that

2. Economic Production Run

a. An economic production run (EPR) is an estimate that reflects the production quantity that

year.

b. The EPR formula is:

C

2QS

EPR 