Inventory Management, benchmarking nk-stinson (1)

Inventories are kept at a reasonable level and not

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inventories are kept at a reasonable level and not inflated to manipulate operating income, Hampshire Company would benefit by utilization of this method of inventory costing. Regarding inventory ordering and production, just­in­time inventory system orders or produces goods so that they are delivered just when needed. The JIT inventory system is designed to improve an organization’s “productivity, quality and flexibility,” according to White and Prybutok (2001). Fullerton and McWatters (2001), reported that JIT pulls inventory through production as orders are demanded. The natural consequences of this short­run batch production include the fact that quality is improved, since production can respond more quickly to errors demand changes, (Fullerton and McWatters, 2001). Proper use of JIT inventory systems can result in the improvement of financial performance measures as well as measures of inventory, quality and time. Horngren et al. (2015), wrote that demand is the trigger for production ­ consumer demand for the product, all the way back to demand for direct materials at the start of production. Horngren et al. (2015) reports that JIT production is organized into manufacturing cells, with multi­skilled workers, distinct set­up and manufacturing cycle times, aggressive elimination of defects and quality suppliers and that use of JIT lowers carrying costs associated with large inventories. According to Horngren et al. (2015), despite the fact that the JIT inventory system may incur some extra costs, (extra tooling costs to reduce set­up times, initial costs from implementation), these extra costs can be significantly offset with the savings from the reduction
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in costs associated with carrying less inventory, (insurance, storage, and materials handling costs). The author contends that Hampshire Company is in a good place to implement this inventory system, as they only manufacture one object, and that through an increase in efficiency and quality standards by acquiring better suppliers, Hampshire Company will be manufacturing a better product, more efficiently while reducing costs. Benchmarking, as defined by Horngren et al., (2015), is the “continuous process of comparing your firm’s performance levels against the best levels of performance in competing companies having similar processes,” (267). By using comparable data from other companies
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  • Spring '09
  • Prof.S
  • Cost Accounting, Horngren, Horngren et al., JIT inventory, JIT inventory systems

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