of the product, and direct cost savings from the elimination of non-value-adding activities (Greenblatt, 1993, p. 41). Quality is of the utmost importance when using small lots because the company lacks a buffer inventory. This means that the entire production process must halt until any problem is rectified. Additionally, built-in quality yields fewer inspection costs, less rework, less scrap and fewer returns.
Within a JIT environment, a fundamental goal is the reduction of total product cost. If total cost per product is reduced, it may be possible to decrease the price per unit of the product. This translates into greater profit (assuming the contribution margin per product is not decreased too much). Higher quality will add to the demand for the product, which, in turn, generates more profit for the firm. Therefore, JIT increases the firm's ability to compete if total product cost is reduced, particularly if quality is improved.
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