Just in Time (JIT): formula sheet

Key formulas

JIT in one line

Produce only what is needed, when it is needed, in the quantity needed

Use this as your opening definition in any answer.

Pull system vs push system

Pull: production triggered by actual demand. Push: production triggered by forecast or schedule

JIT is a pull system. Traditional manufacturing is typically push.

Core aim of JIT

Eliminate waste + continuous improvement (Kaizen) + total quality

These three ideas hold the philosophy together.

Waste categories

Overproduction, waiting, transport, over-processing, inventory, motion, defects

Seven commonly cited wastes from the Toyota Production System. Name as many as the question needs.

Number of kanbans

N = D × L × (1 + S) ÷ C

D = demand per unit time, L = lead time (same time unit as D), S = safety factor as a decimal, C = container capacity in units. Always round N up to a whole number.

Maximum inventory in the loop

Maximum stock = N × C

Cards in circulation multiplied by container size caps the stock for that part.

Lead time

L = waiting time + processing time + move time (+ other delays)

Convert to the same unit as demand before using the kanban formula.

Pull rule

No kanban = no production and no movement

Use this to separate pull from push. Push is driven by schedule or forecast.

Standard cost per unit

Standard cost per unit = Standard material cost + Standard conversion cost

This rate is used to flush costs to finished goods and cost of goods sold.

Cost flushed on completion

Cost to Finished Goods = Units completed × Standard cost per unit

Used when the trigger is completion of production.

Cost flushed on sale

Cost of Goods Sold = Units sold × Standard cost per unit

Used when the trigger is sale. Under a sale-only trigger, there may be no finished goods entry.

Conversion cost applied

Conversion cost applied = Units produced × Standard conversion cost per unit

Credit Conversion Cost Control, debit Finished Goods or Cost of Goods Sold as per the trigger. Where sale is the trigger, the units costed are the units sold.

Under or over-applied conversion cost

Actual conversion cost incurred − Conversion cost applied

A positive figure is under-applied (a debit balance), a negative figure is over-applied. Normally adjusted to Cost of Goods Sold.

Common trigger point sets

Set 1: purchase of materials, completion of production and sale. Set 2: purchase of materials and sale. Set 3: completion of production and sale only.

Which entries appear, and where stock is held, depends on the trigger set.

Net benefit of adopting JIT

Net annual benefit = Annual savings from JIT − Annual additional costs of JIT

Savings: inventory carrying cost, space, scrap and rework, handling. Extra costs: higher purchase price, more frequent deliveries, training, lost-sales risk.

Inventory carrying cost saved

Saving = Reduction in average inventory (₹) × Carrying cost rate (%)

Carrying cost rate includes interest on funds, insurance, storage and obsolescence.

Payback on JIT investment

Payback period = One-time implementation cost ÷ Net annual benefit

Use when the one-time cost is a lump sum and benefits are even each year.

One-time release of working capital

Cash released = Opening inventory − Inventory after JIT

This is a one-time gain, not a yearly saving. Only the carrying cost on it recurs.

Quick revision

• JIT means producing and buying only what is needed, when it is needed, in the quantity needed.
• The main aim is to remove waste and reduce inventory, lead time and set-up time.
• JIT is a pull system: production is triggered by demand, not by forecasts.
• Traditional systems push production through the plant based on schedules.
• High quality at source and few defects are essential for JIT to work.
• Close, reliable relationships with a small number of suppliers are a core prerequisite.
• Kanban is a card or signal system that authorises production or movement of materials.
• Backflush costing records costs after the event, working backward from output.
• Backflush costing reduces detailed tracking and may drop the raw material or work-in-process account.
• Key limits of JIT are supply disruption risk and dependence on stable demand.
• JIT needs employee involvement, multi-skilled workers and a culture of continuous improvement.
• In a case question, link JIT suitability to demand stability and supplier reliability before recommending.

Common mistakes

• Describing JIT only as an inventory reduction technique Fix: Say JIT is a philosophy covering production, purchasing, quality, people and suppliers, with low inventory as one result.
• Mixing up push and pull systems Fix: Remember: pull is triggered by demand from the next stage or customer; push is triggered by forecast or schedule.
• Saying JIT means no inventory at all and nothing else. Fix: Say JIT aims to minimise stock by removing the causes of it: poor quality, long setups and unreliable supply.
• Treating small lot size as a free choice, without setup reduction. Fix: Always write that small lots are viable only when setup time and cost are cut sharply.
• Treating kanban as the same thing as JIT Fix: Say that JIT is the philosophy and kanban is one control tool used to run a pull system.
• Describing the signal as moving forward Fix: Material flows forward, but the kanban signal flows backward from the user stage to the supplier stage.
• Recording entries at every stage of production, as in normal job or process costing. Fix: Under backflush, only trigger points create entries. Check the question and post only at those points.
• Using actual cost instead of standard cost when flushing to finished goods or COGS. Fix: Purchases go in at actual cost. Flushing uses standard cost per unit.
• Treating the release of inventory as a yearly saving. Fix: Treat it as one-time cash released. Only the carrying cost on it is a recurring saving.
• Saying JIT and lean are the same. Fix: State that JIT centres on inventory and timing, while lean covers all waste across the value chain and focuses on customer value. JIT is a part of lean.

Exam tips

• Begin every theory answer with a crisp definition and the Toyota origin. It earns easy marks.
• In case questions, quote the facts given, such as stock levels or lead times, and connect them to JIT principles.
• Be ready to contrast JIT with traditional systems: pull vs push, minimum stock vs buffer stock, few suppliers vs many, quality at source vs inspection at the end.
• For MCQs, watch for options that sound right but describe traditional practice, such as production based on forecasts or large safety stocks.
• Write a balanced conclusion with one benefit and one limitation when the question says evaluate or discuss.
• Expect a 14-mark theory answer asking for elements or prerequisites. Use six bold headings and a reason under each.
• In case-based MCQs, match the problem in the scenario (long setup, many suppliers) to the matching element.
• For comparison questions, use a point-by-point list with at least five pairs. Do not write long paragraphs.