The effects of just‐in‐time systems on financial accounting metrics

The literature indicates that JIT has been successful as an inventory reduction tool. JIT systems do not, however, automatically increase profit, because the benefits from JIT adoption may be offset by the associated direct and indirect costs of implementation such as training, capital expenditures for reengineering, increased shipping costs, and the mechanics of the absorption costing process. Explores the trends of financial performance as indicated by accounting metrics and the magnitude of change in that performance. Seven commonly used financial ratios were studied covering a period from 1990 through 1999 for companies identified as having adopted the JIT philosophy. It is concluded that JIT effects positive trends in the shorter‐term financial measures. It is not clear how deeply entrenched in the US manufacturing strategy, as a whole, JIT practices will need to be deployed before shareholders will feel a significant effect.