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Adoption and Use of Just In Time (JIT) Strategy by Manufacturing Firms in the Context of the Global Economic Essay

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Introduction

            The manufacturing sector continues to experience significant declines as the impact of the financial crisis deepens. In 2008, the impact of the financial crisis caused a drop in manufacturing by as much as 38.8 percent (Blanchard, 2008). The drop was due to the concurrent cyclical decline in the consumer market that affects production. Consumption decreased because of the ripple effect of the credit crunch following the collapse of the housing or mortgage sector. The credit crunch meant that banks were hesitant to provide new loans to individuals and business firms because of the fear of default of payment of inability to pay as what happened in the mortgage market (Budworth, 2008). This implied limited capital investments injected and circulating in the economy. Without new capital, there is no business growth. On the part of banks, those heavily investing in mortgage-backed securities experienced heavy losses when many started to default on their mortgage payments as interest rates increased.  All these spilled over to the manufacturing sector in terms of lesser consumption leading to the concurrent slowdown in the levels of production. Slowdown in production meant loss of labour rendered redundant by the decrease in production (Malone & Finkle, 2008). The losses of income of households, which comprise the biggest pool of consumers, meant further declines in production. This cyclical process has been occurring since mid-2007 and continuing until the present. In 2009, expectations of the impact of the declines in manufacturing should lead to unchanged revenues or declines for most manufacturing firms (Goupil, 2008).

            The strategic challenge to manufacturing firms now is to enhance efficiency of processes and systems to adjust to the impact of the economic crisis and sustain the company until economic improvements emerge, which should commence towards the end of 2009 depending on the outcomes of the economic rehabilitation plan of the new administration and governments around the world. Manufacturing companies need to understand the factors affecting their operations, anticipate the effect in the short and long term, and pattern production based on shifts in market demand. These are captured by the just in time (JIT) strategy, which advocates the levels of production matching market demand. This means flexible production outcomes and high inventory turnover. Flexibility is necessary to adapt to the uncertainties wrought by the financial crisis and high inventory turnover is both a cause and outcome of efficiency, which serves the interest of business firms in a financial crisis. The just in time strategy has existed in the manufacturing sector as a strategy that facilitated the survival of some firms during the Asian economic crisis. This has also found application by some manufacturing companies, particularly in automobile sector in the aftermath of the Asian financial crisis.

            The current case is that just in time strategy is not widely applied in the manufacturing industry even during the aftermath of the credit crunch and during the continuing financial crisis. This gives rise to the issue of its applicability to the manufacturing sector based on the perceptions of business firms and experiences with the strategy. The aim of the study is to investigate the adoption and use of just in time strategy in the manufacturing sector in the context of the continuing financial crisis. To achieve this aim, the investigation seeks to achieve the following objectives:

To draw the perception of manufacturing firms towards the just in time strategy in terms of its application and benefits to the firms experiencing the economic crisis
To identify the reasons for adopting or not-adopting just in time strategy
To know the outcomes as well as issues faced in adopting just in time strategy for firms that used this strategy
To learn the intentions towards the adoption of just in time strategy in the future for firms that have not used this strategy
To derive insights on the applicability and use of the just in time strategy for manufacturing firms experiencing the effect of the financial crisis
Preliminary Literature Review

            The just in time strategy refers to the collective term for the range of management methods. These methods target the goal of minimising all forms of wastage in the production process including excess inventory and labour, unnecessary costs in logistics, delays, errors, and poor quality. By minimising waste, the manufacturing company should result to a level of production that meets shifts in demand. As such, there would be a decrease in inventory on raw materials and finished products because of the direct delivery of raw materials to the production site and the delivery of finished products from the production site to retailers or end consumers. (Cheng & Podolsky, 1996) JIT strategy also pertains to the integrated activities developed to support the achievement of efficiency in terms of high levels of production by utilising only minimal resources and keeping low inventories of finished products to decrease waste (Chase, et al., 2004). The minimisation of waste and efficiency translate to cost efficiency and sustainable revenue generation (Saloner, et al., 2000; Hitt, et al., 2008).

            The benefit of implementing the just in time strategy is the decrease in the overall cost of production by minimising wastage of raw materials, work-in-process inventory, and finished products and experiencing concurrent decreases in the associated costs of warehouse storage, transportation, and handling. Cost reduction then translates into related benefits for the firm such as investment in product development, customer relationship management, human resource management, and other areas. (Cheng & Podolsky, 1996; Chase et al., 2004) The benefit could explain the adoption of manufacturing firms of the JIT strategy.

            However, there is also downside to JIT strategy. The traditional system of keeping higher levels of inventory than under the JIT strategy serves the purpose of security net in case of problems occurring in the production process that could delay delivery to the market. These problems include machine breakdowns, delayed raw materials, work stoppage or strikes, and even natural calamities. Any of these problems could impede or completely halt production and prevent the company from meeting demand. By keeping inventory, manufacturing firms ensures the continuity of delivery to customers. (Cheng & Podolsky, 1996; Chase et al., 2004) These could explain the hesitation or failure of manufacturing firms to adopt the JIT strategy.

            The application of JIT strategy to real business context led to different perspectives over the adoption of this strategy and its benefits to manufacturing firms. In application, implementing the JIT strategy is not easy or simple because of the need for effective management. Nevertheless, with strategic planning and direction, benefits should accrue to manufacturing firms implementing this strategy. The hesitation to adopt JIT and the problems experienced by manufacturing firms in implementing JIT could be due to management issues.

Consideration of JIT as a tool for decreasing inventory shows that manufacturing firms implementing the strategy experienced reduction in inventory, particularly in work-in-process inventory. Although, there are differences in the extent of inventory reduction experienced by manufacturing firms, the decrease in inventory could be directly attributable to the implementation of the JIT strategy. Nevertheless, the ripple effect on profitability is not instantaneous. Offsetting factors such as the costs directly and indirectly connected to implementation could affect profitability. This implies that the impact of JIT strategy on profitability is likely in the long-term. (Boyd, et al., 2002) This shows that inventory reduction is achievable in the actual operations of manufacturing firms. However, the extent of impact on the firm depends on the mitigating factors such as implementation costs.

Much of the studies on JIT in the manufacturing sector focused on the impact of the strategy on the supply chain. The just in time strategy has a positive impact on the performance of firms by ensuring efficiency and quality. However, results are not automatic by just adopting the strategy. Manufacturing firms need to understand the supply chain in order to identify the areas in need of waste reduction. These firms also need to commit to ensuring quality to support improvement in performance. (Kannan & Tan, 2005) The improvement in performance from the implementation of the just in time strategy is due to the development and application of sales techniques grounded on the JIT-related capabilities of the company such as delivery on time, no defects, and exact quantity. Manufacturing companies gain additional value offering in selling their goods based on its competencies developed in the implementation of the JIT strategy. (Green & Inman, 2005) A different perspective emerged indicating that the effect of JIT on knowledge building over partners in the supply chain is towards suppliers. JIT does not affect the prediction of market performance. (Christensen, et al., 2005) The difference in perspective indicates the limitations of the JIT strategy, which means the need to augment the strategy with marketing information.

            Technology emerged as the enabler of the achievement of the benefits of JIT strategy. Electronic data interchange refers to the ICT-based system developed by manufacturing companies to link the accounting or finance and marketing departments with the managers in charge of production. This results to the ease in sharing information on resource availability and use. This leads not only to the reduction of waste but also flexibility in case of changes in the manufacturing environment. (Nicolaou, 2002) ICT capability augments the impact of the JIT strategy.

            Flexibility in labour relations and human resource management is a consideration and outcome of the implementation of the just in time strategy. A survey of manufacturing firms that adopted the JIT strategy shows the trend towards the engagement of casual or contractual workers. This was a move to ensure adaptability and flexibility in applying the JIT strategy and as an outcome of strategy implementation. (Benson, 2007)

            Two distinctive perspectives emerged over the use of JIT strategy in times of economic or financial crisis. These perspectives focus on the role of JIT strategy in ensuring the continuous viability of the company by having the capabilities to adapt to changes and avert risk.

            One perspective is the portfolio-of-initiatives. This refers to the creation or integration of sufficient initiatives supporting the achievement of high returns when compared to the risks involved. This necessitates openness on the part of business leaders and managers over the direction that the company might take. Another requirement is creativity from management personnel to cover all risk areas and create responsive initiatives. Having a portfolio-of-initiatives then ensures that the firm is ready to face risks and mitigate the likely adverse impacts. This builds adaptability and flexibility, which are competencies vital in surviving an economic or financial crisis. (Bryan, 2002) Portfolio-of-initiatives is a strategy in itself. However, the just in time strategy constitutes a form of portfolio-of-initiatives because it requires the company implementing the strategy to develop an integrative strategy of actions pertaining to different areas such as supply chain management, human resource management, marketing management, finance management, ICT development, and other areas. This is inevitable since the JIT strategy carries a wave-like impact on firms.

            Another perspective is the enterprise resilience, which refers to the capability of firms to survive any systemic discontinuities or disruptions in its operations as well as facilitate adaptability to the emergence of new risk-influence operating environments. The resilient business firm is one that has aligned structure, operations, strategy and systems as well as built decision-support competencies to allow the firm detection of changing risks, adjustment to these changes, and endurance of risk-related disruptions. Doing so would create an advantage for the firm. (Starr, et al., 2003) This concept supports the applicability of JIT strategy in times of crisis since this strategy ensures the resilience of firms to risks and risk disruptions.

Methodology

            The methodology applies the research onion model (Saunders, et al., 2006) in developing the methodology for the study. The model provides for the consideration of different tiered aspects of the study necessary to create a rigorous research.

Research Philosophy

            The research philosophy is the guiding principle in the investigative process (Saunders, et al., 2006). Objectivism is the principle guiding the study because this fits the purpose of collecting data without the interference of the researcher. The source of primary data comprise of manufacturing companies.

Research Approach

            The investigative approach is the perspective in the collection, analysis and organisation of data. The research approach for the study is deductive, which moves from general to specific. (Saunders, et al., 2006) This is the appropriate perspective because the study starts with the general principle or theory of just in time strategy before moving to application in the specific context of manufacturing firms. The results would then support conclusions that validate or invalidate, wholly or partially, the theory studied.

Research Strategy

            The strategy of the research is the process or system of collecting research data. The selected strategy is survey. (Saunders, et al., 2006) This works best for the study for a number of reasons. One, the study seeks to draw data from a wide range of manufacturing companies to ensure sufficient representation to support generalisations for the sector. Another, the investigation also targets the derivation of a wide range of perspectives and experiences of the just in time strategy to support conclusions over the adoption of this strategy by manufacturing companies in the context of the financial crisis. The survey strategy requires sufficient allocation of time and resources but with research planning, there should be enough time for data collection.

Methodological Choice

            The choice of methodology refers to the nature of the data collected and the concurrent process of data analysis. The method of choice for the study is the mixed method that combined quantitative and qualitative study. Mixing these two types of study combines the strong points and addresses the weak points.

            The qualitative study involves the gathering of descriptive data from research participants over their accounts of experiences over a particular phenomenon. The strength of the qualitative study lies in its focus on the accounts and descriptions from the research participants over the phenomenon studied. This result to explanations of one or all aspects of the phenomenon investigated. Conducting a qualitative study also supports the drawing of meaning and interpretation of factors or elements emerging from the accounts of the respondents. However, this method also holds the weakness of the inability to deliver measurable data for purposes of understanding the phenomenon in this light. (Creswell, 2003)

            The quantitative study draws data from respondents subject to measurements via statistical tools. The data could be in itself in numerical form or subject to assessment using measures. The strength of the quantitative study is the ability to test theories and hypotheses using measurable data and statistical data to capture or explain a given phenomenon. However, this method carries the weakness of the inability to provide accounts of experiences and perspectives of the phenomenon to answers the why question. (Creswell, 2003)

            By combining both methods, the study is able to obtain both accounts of experiences and perspectives and measurable data integrated to collaborate and complement each other. In using the mixed method, a comprehensive picture of JIT strategy adoption by manufacturing firms in light of the financial crisis develops. The mixed method also aligns with the purpose of the study to draw information from many people treated through measures and data based on the accounts of the research participants.

Time Horizon

            The time horizon of the study refers to the period covered by the data collected. The time horizon for the study is cross-sectional. This involves the collection of data from a single point in time as opposed to data over a given period in longitudinal studies. (Saunders, et al., 2006) Although the period of primary data collection as shown in the project plan below indicates that the data collection process covers two months, this period is not long enough for significant developments to occur in the manufacturing companies studied. It does not qualify as a longitudinal study. Furthermore, the responses to the questionnaire could be instantaneous or within a span of days so that there are likely no significant changes in the experience or perspectives of the respondents over the adoption of just in time strategy.

Techniques and Procedures

            The data required for the study are secondary and primary data. Secondary data comprise those collected for another purpose and presented in source such as books, journals, magazines, newspapers, dissertations and theses, reports, other documents, and online works. Primary data comprise those derived for the original purpose of the research, which in the study is the investigation of the adoption of the JIT strategy by manufacturing companies in the context of the financial crisis. Using both data provides a framework for the investigation and data directly and comprehensively addressing the aim of the study.

            The data collection method is questionnaire shown in Appendix B below. The questionnaire has four parts, the first section is on the personal and work information of the respondents, the second section is on the impact of the financial crisis to the company, the third section is on the adoption of JIT, and the fourth section is on the use of JIT. The questions combined closed and open-ended questions, the former to support measurable data and the latter to descriptive accounts. The floating of the questionnaire is by sending a letter, and calling to confirm receipt and answer any possible questions or personal visit, explaining the purpose of the survey containing authorization for the university together with the questionnaire and a stamped envelope for post or e-mail address for companies with online contact options.

            The selection of manufacturing companies employs stratified random sampling (Creswell, 2003) by determining the types of manufacturing companies and selecting a representative sample from the companies falling under these types randomly. The types would depend on the list obtained from the appropriate government agency.

            The method of quantitative analysis of the responses would be descriptive statistics including the derivation of mean, standard deviation and ratios to obtain quantitative data. The qualitative analytical strategy includes the identification of themes, comparison, and drawing of implications relative to the aim and objectives of the study.

Project Planning

            The plan for the research project covers a six-month period. Half of the time is for preparation and data collection. This ensures sufficient time to obtain data from as many companies that would respond and return the answered questionnaires. The remaining half is for data analysis and write-up of the research report. This secures sufficient time for the organisation of the research report as well as report improvements as the need arises.

1st mo
2nd mo
3rd mo
4th mo
5th mo
6th mo
Approval of Research Proposal

Collection of Secondary Data

Collection of Primary Data

Data Analysis and Organization of Results

First Draft

Second Draft

Final Dissertation Paper

Bibliography

Benson, J., 2007. Management strategy and labour flexibility in Japanese manufacturing enterprises. Human Resource Management Journal, 6(2), pp.44-57.

Blanchard, D., 2009. Just in time — manufacturing is not an ideology. Industry Week, 1 Apr. Available at http://www.industryweek.com/articles/just_in_time_–_manufacturing_is_not_an_ideology_18707.aspx [22 March 2009]

Boyd, D.T. Kronk, L. & Skinner, R., 2002. The effects of just-in-time systems on financial accounting metrics. Industrial Management & Data Systems, 102(3), pp.153-164.

Bryan, L.L., 2002. Just-in-time strategy for a turbulent world. McKinsey Quarterly, 2, pp.16-27.

Budworth, D., 2008. The credit crunch explained. Times Online, 14 Aug. Available at

http://www.timesonline.co.uk/tol/money/reader_guides/article4530072.ece [22 March 2009]

Butcher, D.R., 2009. Industry outlook: 2009 and beyond. Available at

http://news.thomasnet.com/IMT/archives/2009/01/industry-business-outlook-2009-and-beyond-economy-manufacturing-production-jobs.html [22 March 2009]

Chase, R. Jacobs, F. & Aquilano, N., 2004. Operations management for competitive

advantage. New York: McGraw-Hill Irwin.

Cheng, T.C. & Podolsky, S., 1996. Just-in-time manufacturing – an introduction. New York: Springer.

Christensen, W.J. Germain, R. & Birou, L., 2005. Build-to-order and just-in-time as predictors of applied supply chain knowledge and market performance. Journal of Operations Management, 23(5), pp.470-481.

Creswell, J., 2003. Research design: qualitative, quantitative, and mixed methods approaches. 2nd ed. Thousand Oaks, CA: Sage Publications Inc.

Goupil, R.M., 2008. Economic slowdown to continue in 2009. Available at http://www.ism.ws/about/MediaRoom/NewsReleaseDetail.cfm?ItemNumber=18733 [22 March 2009]

Green, W.R & Inman, R.A., 2005. Using a just-in-time selling strategy to strengthen supply chain linkages. International Journal of Production Research, 43(16), pp.3437-3453.

Hitt, M.A. Ireland, D.R. & Hoskisson, R.E., 2008. Strategic management: competitiveness and globalization, concepts and cases. 8th ed. Boston, MA: South-Western College Publishing.

Nicolaou, N.I., 2002. Adoption of just-in-time and electronic data interchange systems and perceptions of cost management systems effectiveness. International Journal of Accounting Information Systems, 3(1), pp.35-62.

Kannan, V.R. & Tan, K.C., 2005. Just in time, total quality management, and supply chain management: understanding their linkages and impact on business performance. Omega,
33(2), pp.153-162.

Saloner, G. Shepard, A. & Podolny, J., 2000. Strategic management. New York: Wiley.

Saunders, M. Lewis, P. & Thornhill, A., 2006. Research methods for business students. 4th ed. Essex, UK: Pearson Educational Limited.

Scott, M. & Finkle, J., 2008. Job cuts spreading to U.S. manufacturing sector. International Herald Tribune, 19 Oct. Available at http://www.iht.com/articles/2008/10/19/business/layoffs.php [22 March 2009]

Starr, R. Newfrock, J. & Delurey, M., 2003. Enterprise resilience: Managing risk in the

networked economy. Strategy+Business, 30. Available at http://www.strategy-business.com/press/16635507/8375 [22 March 2009]

Appendices

Appendix A: The Research Onion Model

          Source: (Saunders, et al., 2006)

Appendix B: Questionnaire

Preliminary Information

Name (optional):_________________________________________________________

Company Name: _________________________________________________________

Industry/Sector:__________________________________________________________

Position: ________________________________________________________________

Department: ____________________________________________________________

Years of Service: _________________________________________________________

Impact of the Financial Crisis

Is your company affected by the financial crisis?

YES_____                                         NO_____

If YES, how has the financial crisis affected your company?

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________

If NO, what factors facilitated the lack of impact of the crisis on the company? Please explain.

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Adoption of Just In Time Strategy

Has your company adopted just in time strategy?

YES_____                                         NO_____

If YES, when did your company adopt this strategy and what were the factors that influenced this move? Please explain.

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________

If NO, why has your company not adopted this strategy and does the company have any plans of adopting this strategy? Please explain.

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Use of Just In Time Strategy (for companies that adopted the JIT strategy)

What areas of operation has the JIT strategy influenced? Please identify and rank the applicable answers, with 1 as the area most strongly influenced.

                  Supply Chain Management__________

                                               Logistics__________

                               Production Process__________

       Finance & Resource Management__________

            Human Resource Management__________

                                            Leadership__________

                                 Decision-Making__________

                                      ICT Capability__________

                         Customer Relationship__________

                         Others, please identify__________

What are the benefits of JIT strategy to the company? Please identify and rank the applicable answers, with 1 as the greatest benefit.

                 Risk Aversion/Preparedness__________

                                             Flexibility__________

                                             Efficiency__________

                                        Cost-Savings__________

      Profitability__________

                                  Waste Reduction__________

                              Inventory Decrease__________

Better Organisational Communication__________

       Better relations with stakeholders__________

                         Others, please identify__________

What were the issues that emerged from the use of the JIT strategy? Please identify and rank the applicable answers, with 1 as the most serious issue.

    Cost__________

                 Organizational Resistance__________

             Insufficiency of the Strategy__________

                          Lack of Strategic Fit__________

       Lack of Impact on the Company__________

                       Others, please identify__________