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A key focus of any JIT system is on reducing various kinds of wastage of time, so that the entire production process is concentrated on the time spent in actually producing products.
For example, all inspection time is eliminated from the system as operators conduct their own quality checks. Similarly, all movement, which involves shifting inventory and work in process throughout various parts of the plant, can be eliminated by clustering machines together in logical groupings. Third, queue time is eliminated by not allowing inventory to build up in front of machines. Finally, one can eliminate storage time by clearing out excessive stocks of inventory and having suppliers deliver parts only as and when needed. By shrinking the amount of wastage time out of the manufacturing process, a company effectively eliminates activities that do not contribute to the value of a product, which in turn reduces the costs associated with them.
Another way in which waste is eliminated in a JIT system is to charge cost drivers to wasteful activities that accumulate costs.
For example, overhead costs can be charged out based on the number of components in a product (since more parts require more purchasing activity and materials handling), the number of material moves (which is not a value-added activity), or the number of units scrapped. In this way the cost of these activities becomes apparent to management, and as a result, there will be considerable focus on reducing these cost drivers since the accounting system places so much emphasis on their total burdened costs. Then, when these cost drivers have been reduced to significatnt levels, the cost accountants can find other wasteful cost drivers and shift the allocation system to place the most emphasis on them. This directs management’s attention toward their elimination, too. And so on.
In this way the cost accounting system can be continually altered so that it has a direct, active role in reducing wasteful activities.
