Summary by Dorinda Martinez
Master of Accountancy Program
University of South Florida, Summer 2001
What is JIT II?: Just-In-Time has revamped its processes and produced JIT II. JIT II places more responsibility with the suppliers for functions such as: forecasting usage; ordering replenishments; and billing the organization. JIT II systems are frequently implemented in client/server environments, where multiple servers have access to a database utilizing Structured Query Language (SQL). The authors assert that JIT II provides the potential to reduce inventories, eliminate redundant purchasing agents and get cost-saving tips from having suppliers familiar with their business. The retailing industry denotes this as ECR, efficient consumer response.
Risks: The JIT II system is inherently risky because it relies heavily on the supplier:
Cost savings may not be realized if suppliers do not synchronize their deliveries with demand.
Suppliers may attempt to serve more customers than they can accommodate.
Suppliers may fail to make needed improvements.
It can be difficult to sever a relationship that no longer works.
Frequently controls disappear in JIT II such as: approval of purchase requisitions; no longer receive purchase requisitions; Receiving no longer inspects incoming merchandise; traditional paper trail ceases to exist; and reduced separation of duties. Many of the risks have the ability to be corrected if queried and monitored correctly by management and operational personnel. The risks mentioned in the article can be found in the table below.
|Stockout||Risk with the greatest potential impact on production||Controlling for this risk requires determining which items from which suppliers have been out of stock, or nearly so.|
|Overstock||Suppliers can abuse their ordering privileges by over ordering inventory items||Quantity on hand is greater than two times average daily usage|
|Defective Items||Inspection and testing costs are increased||Query number of defective products per supplier|
|Overpriced Items||When Suppliers secure contracts they may take advantage of these relationships by becoming less price competitive||Compare the current suppliers prices with competitors prices weighted by quantities of the items received|
Implementation: If a company recognizes the risks involved and still has an interest in JIT II there are four steps to a successful implementation.
Step 1 - Design: Management must recognize at the initial stage that primary responsibility for ensuring that suppliers adhere to their agreements lie with them. Operating personnel should participate with management in the design phase because they will be working with the queries that the system produces.
Step 2 - Data Access: The next step involves working with the company’s information systems provider to detail the collection and access of the data.
Step 3 - Query Development and Maintenance: If operating personnel are to participate in the construction of the queries they will need training. The operating personnel will envision new queries as they become more familiar with JIT II. The authors expressed that simple alterations could be made to the queries later to create more helpful data. SQL commands that the operating personnel will be manipulating can be found in the table below.
|COUNT||Sums the number of rows satisfying the WHERE condition|
|CREATE VIEW||Composes a table SELECTed from rows and columns of another table|
|FROM||Specifies the location of the selected table|
|GROUP BY||Summary information|
|NOT IN||Excludes certain rows from consideration|
|ORDER BY||Sorts the data by ASCending or DESCending order|
|SELECT||Specifies the columns to be displayed|
|SUM||Computes the total of a specified column/row|
|UNION||Combines similar data|
|WHERE||Restricts the data displayed|
Step 4 - Results Monitoring: The responsibility for daily and weekly monitoring of the queries will likely be vested with the operating personnel. The query results will be sent electronically to the personnel and if not resolved within a specified time frame the next level of supervision will receive the queries.
Final Statement: The authors state that converting to a JIT II system from a traditional purchasing system can open a company to new risks, however, it can reduce acquisition costs, shorten acquisition times and decrease inventory holding costs if implemented and monitored effectively.
Note: See the Supplier Arrangements Summary to compare JIT II to the alternatives.
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