Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 52

Process Cycle Efficiency (PCE) and JIT The manufacturing company for which you currently serve as plant controller is contemplating moving from a conventional manufacturing layout to a just-in-time (JIT) system. The overall strategy is to improve manufacturing operations, thereby enabling the company to compete more effectively in an increasingly competitive environment. As a member of the decision-making team, you have been asked to provide input regarding the decision at hand.

Required Prepare a memo for management in which you address the following issues:

1. Comment on the relative costs and benefits of adopting a JIT manufacturing strategy.

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2. For which type of companies, from a competitive standpoint, would the adoption of JIT be most useful? Why?

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3. Define the term processing cycle efficiency (PCE). Given the estimated data below, calculate the PCE for your plant under the existing manufacturing layout and after the proposed implementation of JIT:

Activity	Current System	After JIT Implementation
Storage	3 hours	1 hour
Inspection	40 minutes	8 minutes
Moving	75 minutes	20 minutes
Processing	2 hours	75 minutes

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4. Distinguish between value-added time and non-value-added time within the present decision context.

Step 1 of 11

Just in Time (JIT) Inventory management system:

Just-In-Time inventory management system focuses on increasing the efficiency in production process and reducing waste by managing inventory in such a way that goods are available at each production stage as and when required and no or very less storage cost is incurred. This ultimately decreases overall product cost, results in very less storage cost and avoids spoilage of inventory.