THE IMPACT OF JIT INVENTORY CONTROL ON ACCOUNTING
The Japanese system of inventory control has been variously called the "Toyota system," the "just-in-time system," and the "Kanban system" (Johnson, 1993, 52). Just-in-time means, quite literally, that an assembler on a line receives his consignment of parts "just in time" to use them (Bacharach, Bamberger, & Mundell, 1995, 11). The system is based on an ideal situation in which a part arrives just in time to be used, even though that optimal level of usage is never actually reached. As such, the system operates on the strength of very small lot quantities of replacement parts.
On a typical assembly line, any particular worker might receive an hour's worth or two hours' worth of parts, and would be resupplied very frequently. The term Kanban refers to a card system in which a worker, on an assembly line for example, would post a card on a mast at his or her station when about to run out of parts. This card signifies that they need to be resupplied with new inventory. When the replacement inventory is delivered, the card is removed from the mast (Fleming, 1997, 36).
The theory behind a just-in-time system is that by substituting very frequent, small-lot resupply for traditional larger shipments, the manufacturer is able to avoid the significant cost -- and cash-flow drain -- of maintaining a large standing inventory of parts (Bacharach, Bamberger, & Mundell, 1995, 18). For manufacturers, this means working backwards from incoming orders to determine how many cars, irons or refrigerators need to roll off the line in any given work cycle.
Employed properly, this type of system avoids not only overstocking of assembly parts, but also standing inventory of finished manufactured goods (King, 1998, 6). After all, a car, iron, or refrigerator that is not being shipped out to a distributor or wholesaler simply sits, and sitting inventory costs a manufacturer money. Thi...