STRATERGIC COST MANAGEMENT -1

MODULE-5
IMPORTANT QUESTIONS

Answer the following questions:

2Marks

1. What is just in time?

JIT is a sophisticated approach in eliminating wastage in the
process of manufacturing in different stages,say,from the
production design stage to the stage of delivery of finished
product.JIT is sometimes regarded as an inventory control
technique or a purchasing method.it aims at eliminating all
activities which do not add ‘value’ to the product.

2. What is target costing?

The idea of target costing, originally promoted in japan, is
about going upstream to achieve cost reduction. Target
costing is not really a method of costing, but it is a technique
used in cost management.

3. Define kaizen costing.

Kaizen is the Japanese word consist of 2 separate words
namely ‘kai’ and ‘Zen’.kai means change while Zen stands for
better. Thus kaizen means nothing else but ‘change for
better’.i.e, continuous improvement.

4. What do you mean by benchmarking?

Benchmarking is a systematic and continuous measurement
process. It is a process of measuring and comparing an
organisation’s business processes against business process
leaders anywhere in the world, to gain information which will
help the organisation to improve its performance.

5. What are benchmarking code of conduct?

To contribute to efficient, effective and ethical benchmarking,
individual agree for themselves and their organisation to abide
by following principles for benchmarking with other
organisation-

Principle of legality, principle of exchange, principle of

confidentiality, use of first party contact, third party contact,
preparation.

6. Define waste.
 Waste is a material los during production or storage due to
evaporation, chemical reaction, unrecoverable residue, and
shrinkage etc., wastage may be visible or invisible wastage.

7. What is meant by lean cost management?

Lean management is an approach to running an
organization that supports the concept of continuous
improvement, a long-term approach to work that
systematically seeks to achieve small, incremental
changes in processes in order to improve efficiency and
quality.

Section –B/C

8. What is JIT? Explain how it eliminates wastage of

resources.
INTRODUCTION-
Just in time(JIT) philosophy was first developed in
japan.Toyota introduced it in 50’s and later, other companies
in japan have adopted it.The US companies started adopting
in 80s.Conceptually JIT is a management tool helps to
produce the needed time. It advocates in favour of right
quantum of goods at right time. The ultimate goal of JIT is to
reduce wastage and enhance productivity of the factors of
production by taking part in manufacturing process.JIT is a
programme designed to enable the right quantities to be
purchased or manufactured at the right time without waste.

DEFINATION-
Schonberg defines,JIT as being “to produce and deliver
finished goods just in time to be sold, sub-assemblies just in
time to be assembled into finished goods, fabricated parts just
in time to go into sub-assemblies and purchased materials just
in time to be transformed into fabricated parts”.

Aims and Objectives of JIT

It is important to understand the objectives of JIT.They

include:

 Minimise inventory and its associated costs within the

whole manufacturing / supply chain.
 Achieve a continuous flow of production to meet demand
or supply requirements without delay or waste.
 Ensure total reliability in the delivery of required parts and
material on time.
 Rationalisation of facilities.
 Improvement in production flow.
 Producing the right product.

Kaplinsky and Hoffman highlights seven key elements

of JIT
Demand-driven production
Flexibility in product and process
Multi-skill and multi task work
JIT production(minimum inventory)
Zero defect policies
Giving responsibility back to the worker
Worker involvement in technical improvements.

Features of JIT

 Operates as a ‘pull’ system, producing on demand i.e.,

making to order.
 Aims to minimise set-up time.
 Takes steps to reduce process time.
 Uses a ‘kanban’ system to drive the usage of parts and
control the flow of materials.
 Uses planned production systems.
 Uses manufacturing cells.
 Uses process capability analysis.
 Adopts a TQM (Total quality management) approach to
achieving consider quality standards.

Methodology in Implementation of JIT

The main technique used in implementation of JIT is as

follows:
 Inventory management-
Traditional scientific management solutions would typically
consider some optimal WIP levels or tradeoff between and
spoilage and outputs and system wide effects would be
ignored. The primary emphasis was originally in the
inventory management.JIT begins by identifying problems
and then forcing firms to tackle them, the main tactic used
to reveal such problems in inventory reduction.

 Smaller batches of production-

 If there is low inventory in a JIT system, any fluctuations in
the final stage of production or operation create variations
in the requirements at previous stages. These variations
become progressively larger for process further away from
the final stage. To prevent variation, a minimum lot or
batch size is used. It helps to reduce non conformities
because they ease the rapid detection of problems and,
therefore, the achievement of solution more quickly, before
large quantities are generated.

 Production layout-
Continuous flow of manufacturing is clearly the most
effective way of producing.JIT aims to achieve smooth
flow.

 Kanban-
The concept of ‘kanban’is derived from the Japanese word
for ‘card’or ‘visible record’ and is used as a way of
enforcing the discipline of pull approach to inventory
throughout the factory.it is one of the best known element
of JIT,it is simply the application of a pull system in
inventory management. This approach keeps the workers
 and machines working constantly and eliminating idle time.
Workers use idle time for maintenance thus reducing
overhead costs.

 Reducing process time-

JIT does not accept processing time as a constant and tries
to reduce it as much as any other kind time.

 Flexible management system-

JIT has facilitated introduction of flexible management
system. The use of work cells and minimising setup time
enhances the desired flexibility.

 Reduction of set-up time-

The reduction of set-up time is crucial to JIT, since it offers
increases in flexibility, shorter lead time and reduced
inventories.

 House keeping-
Another very simple but very important tool which
contribute to improved flow, problem recognition and
better maintenance is the systematic application of some
basic principles of good factory house keeping.in particular
 JIT emphasises on clarity,cleanliness,orderliness and
tidiness.

Following are the some other techniques:

 Supply chain management
 Separation of value added function
 Care of uncertainties
 Simplification of process
 Material handling system
 Total quality control
 Multi-function workers.

Benefits in adaption of JIT

 The right quantities are purchased or produced at the
right time.
 The cost effective production or operation of the correct
services, as and when required.
 The minimisation of inventory, work-in-progress and
waste.
 The production of goods which meet exactly the needs of
customers immediately on demand.
 9. Procedure for implementation of kaizen costing:

Refer sec A- for the meaning.

Though kaizen is a Japanese technique, it has, however,

origin in India, which conveys the message ‘small drops
of water together, ultimately results in a lake’.

Procedure for implementation-

 Form small groups from generally the equal level of the
personnel within the organisation. The group size should be
between 6 to 10 numbers. Allot the numbers to all kaizen
groups viz, kaizen no.1, kaizen no.2 etc.
 Appoint a senior level person, above the level of
participants in the kaizen group, as an evaluator to each
group.
 Arrange group’s meeting at least once in a week; preferably
having a fixed schedule for next 6 to 12 months time.
 Submit the progress of improvement in writing in a kaizen
form, as clearly as possible, and distribute the copies of
same to every member of the group, at least one day in
advance of the scheduled meeting.
 Let everybody speak out about his own improvement. If no
improvement made, let him say so to all participant and
then sit in his chair. Allow about 3 to 5 minutes to each
speaker, who has either made or has attempted to make
some improvement during the last week.
 While a member is speaking, all other group members
including an evaluator should only listen him carefully.no
comments should passed. However, a clarification, if
necessary, may be sought instantly.