Summary by Linda Perez
Master of Accountancy Program
University of South Florida, Fall 2000
JIT Main Page | Performance Measures Main Page
The main idea presented in this article is that a well-designed and properly applied performance measurement system is the strongest management tool available for controlling operations and fostering change. Therefore, companies that have made (or are considering making) the change to such advanced manufacturing techniques as JIT should make certain that their performance measurement systems will lead to the performance needed in an advanced manufacturing environment.
Issues to consider before the implementation of a just-in-time system:
Characteristics of a traditional production system:
Short-term scope
Financially oriented performance measurements, i.e. standard cost variances and most ratio analyses.
Financial performance measurements present only a desired result or goal, creating gaps. They do not communicate the means and approach to achieving the goals.
Characteristics of a just-in-time system:
No inventory,
Zero defects,
Lot sizes of one,
100% on-time delivery rate.
Inventory viewed as a liability, rather than as an asset.
Non-financial performance measures work well to fill the gaps and communicate the desired goals.
Performance measurement system guidelines:
1. Address the critical success factors: Optimize the whole system with a top-down approach to the development and analysis of performance measurements.
2. Develop goal congruence: Establish goals so that all levels of the organization are striving for the same end result.
3. Reinforce the desired operating environment and methods: Teamwork is emphasized, especially between functional departments.
4. Provide timely management information: Performance measurement systems should provide data more frequently. Managers must be able to measure progress as well as performance.
5. Foster a long-term perspective: Trend analysis and the performance/reward structure are two strong methods that foster a long-term perspective.
The first step toward achieving optimum results from performance measurement systems is to evaluate their effectiveness. A performance measurement system evaluation should verify that the system supports the company’s strategic goals:
Review and confirm the strategic plan
ID critical success factors (i.e., tactics in the strategic plan, corporate culture)
ID and document the proposed performance measurements needed to attain the critical success factors
Document and review the current performance measurement system
Assess needed changes to the current performance measurement system when compared to proposed system
Develop an implementation strategy for the required modifications.
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Related summaries:
Deluzio, M. C. 1993. Management accounting in a just-in-time environment. Journal of Cost Management (Winter): 6-15. (Summary).
Foster, G. and C. T. Horngren. 1987. Cost accounting and cost management in a JIT environment. Management Accounting (June): 19-25. (Summary).
Fullerton, R. R. 2003. Performance measurement and reward systems in JIT and non-JIT firms. Cost Management (November/December): 40-47. (Summary).
Fullerton, R. R. and C. S. McWatters. 2002. The role of performance measures and incentive systems in relation to the degree of JIT implementation. Accounting, Organizations and Society 27(8): 711-735. (Summary).
Kalagnanam, S. S. and R. M. Lindsay. 1998. The use of organic models of control in JIT firms: Generalising Woodward's findings to modern manufacturing practices. Accounting, Organizations and Society 24(1): 1-30. (Summary).
Kapanowski, G. 2016. Lean fundamentals for accountants. Cost Management (January/February): 5-14. (Summary).
Lee, J. Y. and J. K. Winch. 1998. From push to pull: Management's control system modification for manufacturing change. Advances in Management Accounting (6): 75-92. (Summary).
Martin, J. R. Not dated. Lean concepts and terms. Management And Accounting Web. Lean Concepts and Terms Summary
Martin, J. R. Not dated. Profit Beyond Measure graphics and notes. Management And Accounting Web. Johnson Broms Graphics Notes
Martin, J. R. Not dated. What is lean accounting? Management And Accounting Web. Lean Accounting
McIlhattan, R. D. 1987. How cost management systems can support the JIT philosophy. Management Accounting (September): 20-26. (Summary).
O'Brien, J. and K. Sivaramakrishnan. 1994. Accounting for JIT: A cycle time-based approach. Journal of Cost Management (Fall): 63-70. (Summary).
Patell, J. M. 1987. Adapting a Cost accounting system to just-in-time manufacturing: The Hewlett-Packard Personal Office Computer Division. Accounting & Management Field Study Perspectives, edited by William J. Bruns, Jr. and R. S. Kaplan. Harvard Business School Press: 229-267. (Summary).
Swenson, D. W. and J. Cassidy. 1993. The effect of JIT on management accounting. Journal of Cost Management (Spring): 39-47. (Summary).
Vollmann, T. 1990. Changing manufacturing performance measurements. Proceedings of the Third Annual Management Accounting Symposium. Sarasota: American Accounting Association: 53-62. (Summary).