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How does the JIT approach help in improving an organisation’s profitability?

A complete JIT system begins with production, includes deliveries to a company’s production facilities, continues through the manufacturing plant and even includes the types of transactions processed by the accounting system.
JIT approach helps in the reduction of costs/increase in prices as follows:
(i) Immediate detection of defective goods being manufactured so that early correction is ensured with least scrapping.
(ii) Eliminates/reduces WIP between machines within working cell.
(iii) OH costs in the form of rentals for inventory, insurance, maintenance costs etc. are reduced.
(iv) Higher product quality ensured by the JIT approach leads to higher premium in the selling price.
(v) Detection of problem areas due to better pdn/scrap reporting/labour tracing and inventory accuracy lead to reduction in costs by improvement.

JIT provides competitive advantage in the following ways:
(i) Stocks of raw materials and finished goods are eliminated, stock holding costs are avoided.
(ii) JIT aims at elimination of non-value added activities and elimination of cost in this direction will improve competitive advantage.
(iii) It affords flexibility to customer requirements where the company can manufacture customized products and the competitive advantage is thereby improved.
(iv) It focuses the direction of performance based production of high quality product.
(v) It minimize waiting times and transportation costs.
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