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... at Toyota was rather disappointing, but despite that the company obtained a great amount of cash because of the in-process inventory was all built out or sold. Another unexpected effect was that the response time of the factory fell to about a day. This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay. Also, it became possible to produce to order many vehicles. It gave Toyota the guarantee that they would be sold and so, eliminated the major source of risk.
Some other types of industries apply to the just-in-time system for other segments of the supply chain. However, companies which decided to use the JIT system should be ready for substantial internal changes. Those companies should base their production process on the following principles: - focus not on the stock of production but on manufacturing capacity; - there must exist a system of permanent control in order to make it possible to eliminate production defects and errors in the circumstance of low inventory amount; - to evaluate the efficiency of production process, it is important to take in consideration the length of the entire production cycle, not only production costs; - to change the way of thinking of the staff. The stereotype The more, the better should be changed to the less, the better.
From the experience of the companies, using the JIT Inventory System, the following benefits can be revealed: Set up times are significantly reduced in the factory. Cutting down the set up time to be more productive allows companies to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement. This allows the reduction or elimination of the inventory held to cover the changeover time of equipment. The flows of goods from warehouse to shelves are improved. Having employees focused on specific areas of the system allows them to produce goods faster instead of having them tired because of doing too many jobs at once and simplifies the tasks at hand. Small or individual piece lot sizes reduce lot delay inventories which simplifies inventory flow and its management.
Employees who possess multiple skills are utilized more efficiently. Having employees trained to work on different parts of the inventory cycle system allows companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product. Better consistency of scheduling and consistency of employee work hours. If there is no demand for a product at the time, workers dont have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse. Increased emphasis on supplier relationships.
No company wants a break in their inventory system that would create a shortage of supplies while not having inventory in warehouse. Having a reliable supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public. Supplies continue around the clock keeping workers productive and businesses focused on turnover. Having management focused on meeting deadlines makes employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay. If well-implemented, Just-in-Time technology has rather few disadvantages. The major problem with just-in-time operation is that it leaves the supplier and downstream consumers open to supply shocks and large supply or demand changes.
Among the disadvantages of JIT technology is that it may require a major overhaul of business systems it may be difficult and expensive to introduce. The initial cost is rather high and there are no short term returns. JIT manufacturing also exposes business to a number of risks. Keeping no stocks to use in case of emergency, a minor demolition in supply chain can stop the production process. For example, trucks that deliver details needed, can be delayed by traffic jams. That is why some enterprises turn to keep a minimum of inventory.
There is also a risk of never successfully implementing JIT. However, the advantages of JIT definitely outweigh the disadvantages. If implemented successfully it would eliminate waste, make the company more productive and more efficient. There are many companies successfully using Just-in-Time. They are: Toyota Motor Company, Ford Motor Company, Harley Davidson, General Motors, Manufacturing Magic, Hawthorne Management Consulting, Strategy Manufacturing Inc. and others.
The traditional budgeting system was developed by large organizations in the 1920 s and was pointed to helping financial managers to control the costs. As organizations grew and their structures became more complex, there began to appear different compartments each of which had its own manager. All those departments were subjects of the financial discipline of the companys superior staff. The budget process serves two main functions: to build the internal budgets for each responsibility center in the company and then to form the external earnings per share goal. The budget of a company is compiled annually. A finished budget usually requires considerable effort and can be seen as a financial plan for the new financial year.
The traditional budgeting model bases first of all on control. Senior executives agree upon the companys mission statement and then the planner department writes strategic plan. When the strategic plan is ready the operational managers are enlarged to prepare their budgets. Once the plan together with budgets are ready and agreed upon the only responsibility of managers is to follow it and do not go out of budget frames.
All department managers prepare regularly their reports and in case of exceeding the expences, approved in the budget new directives were issued by senior managers. If the actual figures delivered through the financial year turn out to be close to the budget, this will demonstrate that the company understands their business and has been successfully driving it in the direction they had planned. On the other hand, if the actuals diverge greatly from the budget, this sends out an 'out of control's ideal and the share price could suffer as a result. For many years the traditional budgeting system functioned very well and brought good results. It was so when make conditions were stable, competitors were not so numerous and well known, their actions were rather predictable. All the decisions were made in companies head offices, prices were based on internal costs, strategy and product life cycles were longer, the customers had limited choice.
Now, the conditions of external environment change fast, so the companies should find new ways to respond more quickly to new opportunities, competitors actions and changing customers needs. Moreover, sometimes it is necessary to attract new professionals, which are able to make decisions and take responsibilities for them. As technology systems and production processes are modified constantly within short periods of time, companies need to continuously provide innovative solutions and generate new business, operate with lower costs and higher efficiency. As the competition grows, more attention should be devoted to market research in order to know better the needs of the customers, whether they are satisfied and profitable. The companys shareholders should receive a sustainable, competitive corporate performance. Modern experts outline the following problems with traditional budgets: 1.
Budgets take up too many man-hours. Some large organizations believe that their budgeting process can take up 20 % of senior managements time, and take up to 5 months to complete. 2. Budgets are too inflexible and are a barrier to fast response. There are very few companies that actually update their budget during the fiscal year, exactly because it is too complex and time consuming. Management also spends very little time each month working on strategy, as most time is spent on data collection and reconciliation. Responding quickly in changing environment is difficult having fixed annual strategies and budgetary controls that constrain the freedom to act locally.
Budgets can be a barrier to finding and keeping talented staff. Rigid plans do not encourage entrepreneurial leadership and risk taking. Fixed budgets target is known and all the employees must respect it, so managers are not stimulated and not prepared to aim high. 3. Budgets focus on cost reduction and not value creation. Budgets focus on internally generated targets that are comfortably achievable by you, but appears difficult to your superior. This breeds sub-optimisation and does not promote growth of shareholder value. 4.
Budgets do not reduce costs but protect them. This comes from the old "use it or lose it" mentality. Staff know that if they do not use a budgeted expense, it will get pulled from the next years budget as management sees it as unnecessary. 5. Budgets are developed and updated too seldom. In todays turbulent business environment, the budgeted numbers could change daily and, as a result, the budget would be out of date before the financial year has even begun. 6.
Budgets can encourage gaming and perverse behaviour. Finance managers are more than familiar with managing the slack and making the budget presentable to the board. This, however, creates a culture of dishonesty and can lead to greater troubles such as fraud. 7. Budgets do not allow for product and strategy innovation. The first things to be removed from the budget when a company runs into difficulties are expenses used for innovation and research. However, these should be the most important, as a company cannot grow faster than the competition without innovation. 8.
Budgets are not linked to strategy. A large number of companies are poor at executing strategy. This is because the tool used to implement strategy, the budget, is not measured the same way as the company strategy. 9. Budgets can be a barrier to close relationships with customers. When sales people are focused only on achieving fixed targets for revenue, product volume or gross margin, they have few reasons to care about wether the customers needs are satisfied and the customers are happy and profitable. 10. Budgets can be a barrier to achieving competitive corporate results.
One of the targets of budgeting is to make earning forecasts and set or exceed shareholders expectations. If managers set aggressive targets they sometimes are contained to apply to drastic actions to be able to meet shareholders high expectations, such as downsizing, restructuring and cutting long-term investments in research and development. As one can see, by many reasons the traditional budget can not function as well as before in todays environment. The traditional budget was developed in the manufacturing era where production costs and revenues were predictable, whereas today, there happen events that can change completely the way companies do their business. Any company can respond to change, but it is a matter of how fast it can re-engineer its business in a co-ordinated fashion. Those companies that are capable to adapt to change and have an efficient and effective planning process, gain an advantage over their competitors.
To be able to move to a planning process that is more adaptive and accurate, the main points to be addressed first would be to focus on both financial and operational drivers. This would improve the collaboration between the finance and business unit teams, where they now will co-develop the forecasts. The majority of finance executives also believe that introducing third-party data such as benchmarks and market forecasts would help achieve forecasting objectives. Once the above has been achieved, the organisations are evolving from the traditional budgeting process to rolling forecasts whereby figures are updated on a monthly or quarterly basis. Bibliography /list of references Allen, Scott, Pricing Strategy, About. com, web Compensation: Outline and Definitions, HR-Guide, web Daum, Juergen H. , 2001, Beyond Budgeting web Frazier, Scott C, 2004, JIT Manufacturing Just-in-Time web Just-in-Time (Business), Wikipedia, the Free Encyclopedia web Name, Pierre, Jun 2007, Re-evaluating The Traditional Budget, Accountancy SA, Bnet Business Network, web Gregory, 2005, End of Traditional Budgeting, Journal of Performance Management; Bnet Business Network, web Pricing Strategy, Net MBA Business Knowledge Center, web
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Research essay sample on Pricing Strategy Supply Chain
