Just-in-time and

Just-in-time and performance performance

measurement systems measurement

David Upton
Massey University, Palmerston North, New Zealand 1101

Introduction
Just-in-time (JIT) as a management philosophy has engendered great interest
internationally since the early 1980s. JIT was first implemented by Toyota
Motor Company in the early 1970s and has since spread to other Japanese
companies and globally. It is recognised as one factor contributing to Japan’s
reputation for superior quality and growth in productivity (Keller and Kazazi,
1993).
Numerous articles have been published on JIT implementation making JIT
one of the best known of the Japanese manufacturing philosophies (Keller and
Kazazi, 1993; Ramarapu et al., 1995). Studies employing large sample surveys
have been conducted in the USA (Gilbert, 1990; Im and Lee, 1989), UK (Voss and
Robinson, 1987), Germany (Wildmann, 1988), Italy (Bartezzaghi et al., 1992),
Australia (Clarke and Mia, 1993) and Singapore (Hum and Ng, 1995) to
investigate the state of JIT implementation and development. A review of these
JIT implementation studies shows that little recognition has been given to the
adaptation of accounting systems to meet the information needs generated by
the new JIT production philosophy. For example, Clarke and Mia (1993) note
that the accounting information system aspect of JIT implementation has been
all but ignored in previous studies in Australia.
Johnson and Kaplan (1987) have argued that management accountants must
develop accounting systems which support the changing manufacturing
environment. The accounting literature emphasises the importance of
performance measurement systems and how they can either inhibit or enhance
the implementation of the JIT philosophy (DeLuzio, 1993; Swenson and Cassidy,
1993; Young and Selto, 1991).
The objective of this paper is to investigate the use of performance
measurement systems in firms implementing JIT. Further, the study assesses
the correlation between use of performance measures and organisation
performance. The objective is accomplished by surveying a sample of New
Zealand manufacturing companies to examine the nature of their production
environments, performance measurement systems and organisation
performance. The remainder of the paper is organised as follows. First,
expectations regarding changes in performance measurement systems are
discussed. Next the research method is outlined. Results of the assessment of
performance measurement systems and organisation performance in both JIT International Journal of Operations
and non-JIT production environments are reported. The final section of the & Production Management,
Vol. 18 No. 11, 1998, pp. 1101-1110,
paper discusses conclusions and limitations of the study. © MCB University Press, 0144-3577
IJOPM Theory development
18,11 The implementation of the JIT philosophy will have a profound impact on an
organisation. Major physical, psychological and organisational changes will
occur in the organisation’s work environment. The organisation must develop
closer links with its suppliers and simplify its manufacturing processes and as
a consequence inventory levels can be reduced. These manufacturing changes
1102 will bring about changes in information requirements (Griffin and Harrell,
1991). According to Holzer and Norreklit (1991) the adoption of the JIT
philosophy has a major impact on management accounting.
Performance measurement is argued to be a critical aspect of management
accounting systems within a JIT environment. Inappropriate performance
measures are claimed not only to misrepresent, but also to undermine, JIT
manufacturing efforts (Green et al., 1991; McIlhattan, 1987). The relevance of
traditional standard costing systems for the purpose of performance
measurement in a JIT environment is being questioned. For example, the use of
efficiency variances may encourage production for inventory rather than
demand. A possible consequence of the use of this type of measure is that
inventories of work in process and finished goods will accumulate, which is
contrary to the goal of waste elimination, a central theme of the JIT philosophy.
The goal of maximising individual variances may lead to dysfunctional
activities for the firm as a whole. For example, maximising a price variance may
lead to purchase of low quality materials, which would impact negatively on the
JIT quality goal. Setting standards in a JIT environment can have the effect of
establishing norms, or acceptable levels of performance, rather than promoting
the JIT goal of continuous improvement (Fisher, 1992).
Performance measures should be introduced that relate to the needs and
goals of the organisation (Green et al., 1991). As production processes become
more tightly linked through the elimination of non-value adding activities,
timely and relevant feedback to the shopfloor is essential. These shorter
feedback loops should make the organisation more responsive (Cobb, 1993).
Increasingly the use of non-financial measures which have not been part of
traditional accounting systems and personal observations are proving useful at
the production level in JIT environments (Foster and Horngren, 1987).
Therefore, it is anticipated that JIT users will focus more on non-financial
performance indicators, such as supplier on time delivery and supplier quality
and less on traditional/financial measures such as labour and machine
efficiency. JIT firms are expected to use non-financial indicators to a greater
extent than non-JIT firms.
A further expectation is that greater use of non-financial performance
measures is correlated to organisation performance. This expectation arises
because of assertions in the literature that appropriately matched performance
measurement systems are required to support and enhance the production
environment (Young and Selto, 1991). Therefore, there is an expectation that
greater use of non-financial indicators will be correlated to organisation
performance for JIT firms.
Research method Just-in-time and
A sample of 110 of the largest New Zealand manufacturers, based on number of performance
employees, was drawn from the membership list of the New Zealand measurement
Manufacturers’ Federation. Each firm was contacted by telephone in order to
identify the potential respondent and to obtain their consent to participate in
the mail questionnaire survey. This had the effect of ensuring that the
appropriate person from each company participated in the survey and that 1103
their names and addresses were recorded accurately. In addition, it was felt that
a personal approach by telephone was both courteous and contributed to a
feeling of commitment on behalf of the respondents to complete the survey
questionnaire.
The focus of the research was on JIT implementation and performance
measurement system changes in manufacturing firms and, therefore, the
appropriate respondent for the questionnaire was identified as the individual
responsible for the accounting function at the firm’s production site.
Participants were accounting managers or similar supervisory accountants
who would be knowledgeable of their firms’ accounting practices and
production methods. As a consequence, the results of the survey reflect the
perception of the accountant regarding both the accounting system and the
production system.
From the initial list of 110 companies in the sample ten were eliminated for
one of a number of reasons. Contact details were either incomplete or incorrect,
the firms were no longer in business or more than one branch of a company was
represented in the sample. Of the 100 companies contacted by telephone, five
declined to complete the questionnaire. In two cases the researcher failed to
contact a suitable person within the firm and in two further cases the companies
maintained a policy not to disclose information unless legally required. In the
final case the respondent declined to complete the questionnaire because of a
lack of time.
Subsequently, 95 questionnaires were mailed enclosing a cover letter and a
freepost reply envelope. Within two weeks 75 responses were received. A
follow-up letter with another copy of the questionnaire and a freepost reply
envelope were posted to non-respondents and a further ten responses were
received. Thus, an overall response rate of 85 percent was achieved, which was
considered very satisfactory for the purposes of this research.
The majority of questions used in the study were of the five-point closed
response rating scale form. A glossary of JIT and management accounting
terms was included with the questionnaire.

Variable measurement
JIT implementation – production environment
A pivotal question in the survey was to determine if companies had introduced
the JIT philosophy. JIT is usually considered as a philosophy to eliminate waste,
rather than as a set of techniques (Cobb, 1993). As individual techniques, which
contribute to the JIT philosophy, may be utilised by both JIT users and non-JIT
IJOPM users, participants were asked if they had established a “programme” to
18,11 introduce JIT. The glossary defined JIT as “[a] philosophy which aims to improve
overall productivity by eliminating waste or non-value adding activities
throughout the organisation”. The intent of this question was to separate
respondents who had made a commitment to the JIT philosophy from those who
had merely implemented various aspects associated with JIT. Of the 85
1104 respondents, 31 (36.5 percent) companies had implemented JIT with 54 (63.5
percent) companies indicating they had not introduced JIT. This level of JIT
implementation is similar to findings in other Western countries (see Bartezzaghi
et al., 1992; Clarke and Mia, 1993; Gilbert, 1990; Voss and Robinson, 1987).
The number of years that JIT had been used ranged from one year to 12
years, with many companies having only recently embarked on JIT
implementation. Over half the JIT firms (54.8 percent) had introduced JIT in the
past three years.

Size of companies
Two measures of firm size were taken for firms in the survey; number of
employees, and annual sales. The majority of respondents employed between
100 and 500 employees with the largest category, 100 to 200, representing 42.9
percent and 42.6 percent of JIT and non-JIT respondents respectively (see Table
I). Less than 500 employees may be considered representative of small
manufacturing firms in some countries, for example, US studies define small
manufacturers as having less than 500 employees (Brown and Inman, 1993).
However, the size of firms appears to be representative of larger New Zealand
manufacturing companies. In New Zealand only 3.7 percent of manufacturers
employ more than 50 employees (Statistics New Zealand, 1994). Information
about sales was considered too sensitive by ten respondents. For all firms the
majority of sales were between $NZ 10M to $NZ 20M (22.4 percent) and $NZ
20.1M to $NZ 50M (35.3 percent). The average size of JIT firms (333 employees,
$NZ 71.6M sales) was greater than for non-JIT firms (243, $NZ 51.1M).

Manufacturing activities of respondents

Table II provides some indication of the nature of manufacturing activities in
which respondents were involved. The table suggests that respondents
represent a wide range of industries. The “other” category included a number of

JIT firms Non-JIT firms

Number of employees (%) (%)

Less than 100 12.9 14.8

100 to 200 42.9 42.6
201 to 500 32.2 33.3
Table I. 501 to 1,000 6.5 9.3
Employee information More than 1,000 6.5 0.0
firms operating in building, apparel, motor vehicle assembly, printing and Just-in-time and
chemical manufacture. The main differences between JIT firms and non-JIT performance
firms were that more consumer goods firms and fewer industrial components measurement
firms are represented in the JIT user group.

Performance indicators
All respondents were asked to indicate on a five-point scale the extent to which 1105
they use a range of performance indicators from 1 (to no extent) to 5 (to a very
large extent). Performance measures selected included both traditional/
financial measures and non-financial measures, as used in earlier studies by
Cobb (1992) and Swenson and Cassidy (1993). Table III compares the use of
performance indicators for JIT and non-JIT users. A cursory examination of
this table suggests that JIT users make greater use of non-financial
performance indicators than non-JIT firms.
In order to evaluate the impact of non-financial indicators on organisation
performance the non-financial measures of supplier quality, supplier on-time
delivery, set-up time reduction and scrap were combined to form a single
measure of the use of non-financial performance indicators (CNFI). Cronbach’s
(1951) alpha coefficient for the combined non-financial indicator measure was
satisfactory at 0.69.

JIT firms Non-JIT firms

Industry type (%) (%)

Food processing 6.5 9.3

Textiles 9.7 14.8
Engineering 9.7 5.5
Industrial components 12.9 24.1
Consumer goods 38.6 7.4 Table II.
Packaging 9.7 14.8 Respondents by industry
Other 12.9 24.1 type

JIT (ranked) Non-JIT t-test

Performance indicator Mean SD Mean SD One-tail sig.

Labour efficiency 4.13 0.97 3.93 1.13 0.200

Supplier quality 4.00 1.17 3.43 1.23 0.022
Inventory turnover 3.83 1.09 3.46 1.06 0.066
Supplier on-time delivery 3.73 1.14 3.24 1.23 0.038
Scrap 3.70 1.12 3.57 1.24 0.323 Table III.
Machine utilisation 3.23 1.30 3.30 1.19 0.412 Comparison of JIT users’
Set-up times 3.10 1.18 2.85 1.26 0.188 and non-JIT users’ extent
Note: of use of performance
1 = to no extent; 5 = to a very large extent indicators
IJOPM Organisation performance
18,11 All participants were asked to rate the performance of their organisations in
relation to other comparable organisations on a list of performance criteria from
1 (far below average) to 5 (far above average). The instrument used to measure
organisation performance was a seven-item question developed by Van de Ven
and Ferry (1980). See Table IV for a list of the items surveyed.
1106 A single combined measure of organisational performance was achieved by
summing the seven performance variables (COP). Cronbach’s (1951) alpha
coefficient for the combined organisation performance measure was
satisfactory at 0.84.

Results and discussion

Use of performance measures
The use of performance measures was compared between JIT and non-JIT
firms. A ranking of indicators by extent of use (see Table III) places labour
efficiency as the measure most used by both JIT and non-JIT firms. In certain
production environments an over emphasis on this measure may lead to
inventory buildups, which would be contrary to the JIT goal of zero inventory.
However, in environments such as make to order or process industries, which
hold little stock, a focus on labour efficiency may not be inappropriate. Two
measures which had a significant difference between the two groups, using a
one-tailed t-test, were measures of supplier quality (p < 0.05) and supplier on-
time delivery (p < 0.05). JIT firms use these measures to a greater extent than
non-JIT firms. These findings are consistent with expectations, as JIT users
would be expected to be particularly concerned with supplier performance for
JIT purchasing. A further performance indicator which registered a weak
statistical difference was the measurement of inventory turnover (p < 0.1).
Again, JIT firms use this indicator to a greater extent. It appears consistent that
firms embracing the JIT philosophy would focus measurement attention on
inventory which is an item targeted as representing waste.

JIT (ranked) Non-JIT t-test

Performance factor Mean SD Mean SD One-tail sig.

Reputation for work excellence 3.90 0.65 3.93 0.82 0.448

Quality or accuracy of work
produced 3.90 0.65 3.74 0.73 0.154
Innovations introduced 3.84 0.97 3.69 1.04 0.253
Attainment of organisation
goals 3.71 0.74 3.54 0.86 0.177
Table IV. Efficiency of operations 3.70 0.70 3.39 0.76 0.035
Comparison of JIT Quantity of work produced 3.65 0.88 3.75 0.73 0.274
users’ and non-JIT users’ Morale of personnel 3.52 0.89 3.33 0.91 0.186
relative performance Note:
assessment 1 = far below average; 5 = far above average
A comparison of the use of the combined non-financial performance indicator Just-in-time and
(CNFI) between JIT and non-JIT firms resulted in a positive significant performance
difference (p < 0.05). Overall, JIT firms make greater use of non-financial measurement
indicators than non-JIT firms.

Organisation performance
A comparison of performance between JIT and non-JIT firms as assessed by 1107
respondents is presented in Table IV. From this table it can be seen that
perceived differences in performance are minimal. A one-tailed t-test found one
significant difference (p < 0.05) regarding the efficiency of organisation
operations. JIT firms believe that they are more efficient than their non-JIT
competitors. A second point to note is that the factor “the quantity or amount of
work produced” ranks second for non-JIT companies and sixth for JIT
companies. This may reflect the difference in philosophy between the two types
of firm. The JIT philosophy aims to produce to demand while the more
traditional mentality is to maintain production levels as high as possible,
producing to inventory.
A comparison of JIT firms and non-JIT firms using the combined measure of
organisation performance (COP) found a positive significant difference (p < 0.1).
That is, the overall performance of JIT firms was only tentatively assessed to be
higher than non-JIT firms. This finding is somewhat surprising given the range
of benefits advocated from JIT implementation and findings from prior studies
showing improved performance from JIT implementation (for example, see
Corbett and Bayly, 1991; Inman and Mehra, 1993). As noted earlier a large
proportion of JIT firms are recent adopters which may suggest that JIT benefits
have not yet accrued.

Use of performance measures and organisation performance

An analysis was conducted to test the expectation that greater use of non-
financial performance measures is correlated to organisation performance. A
weak positive significant (p < 0.1) correlation was found between the combined
non-financial performance indicators measure (CNFI) and COP, the combined
organisational performance measure, for JIT firms. JIT firms using non-
financial indicators to a greater extent performed better than other JIT firms.
Interestingly, this positive significant relationship (p<0.001) also held for all
firms in the survey. Thus, both JIT and non-JIT firms with a higher use of non-
financial performance indicators showed higher organisation performance.

Summary and conclusions

The objective of this study was to investigate the use of performance
measurement systems in JIT and non-JIT firms. The correlation between use of
performance measures and organisation performance was also assessed. Firms
which had implemented a JIT programme represented 36.5 percent of the
sample. JIT had been in use for up to 12 years with 55 percent implementing JIT
in the last three years.
IJOPM Included in the analysis was an evaluation of performance measurement
18,11 systems and organisation performance of JIT and non-JIT firms. All firms rely
on traditional performance measures to a large extent. This finding is of
concern because one argument in the literature is that traditional performance
measures not only misrepresent, but may also undermine, JIT manufacturing
efforts. Evidence was found to suggest that JIT firms were implementing non-
1108 financial measures specifically related to the JIT philosophy. The use of non-
financial performance measures was significantly greater for JIT firms than for
non-JIT firms. Organisation performance of JIT firms was marginally higher
than for non-JIT firms. A significant positive correlation was found between
use of non-financial performance indicators and organisation performance for
JIT firms and all firms in the survey.
A number of factors should be considered when evaluating the results of this
study. Although the response rate was high, mail questionnaire surveys carry
inherent limitations. Respondents were asked to classify themselves as either
JIT or non-JIT firms using a simple dichotomous variable. A more rigorous
method of separating JIT firms from non-JIT firms could be developed. Further,
Dunk (1989) provides evidence to suggest that an accounting lag exists between
production changes and accounting innovations. As noted earlier, over half the
respondents (58 percent) had implemented JIT within the past three years
,which may impact on the level of differences between JIT and non-JIT firms.
Respondents were asked to indicate the extent of use of a list of performance
indicators. This list was not exhaustive and additional items could be included.
Further, the questionnaire did not necessarily identify the importance of each
indicator. Future research could investigate in greater depth the nature and
importance of performance indicators used.
The importance of performance measurement systems should not be
overlooked for any organisation. Concerns have been expressed in the
accounting literature that outdated measurement systems may inhibit the
success of JIT implementation. This study indicates that JIT firms are
implementing some management accounting changes in the area of
performance measurement to support the JIT philosophy. However, there is
still a reliance on traditional measures, which are considered contrary to
the philosophy of JIT. Significant relationships between organisation
performance and the use of non-financial accounting measures discussed in this
study suggest that there are benefits in adapting the accounting performance
measurement system to support and enhance JIT implementation. Importantly,
the adoption of appropriate non-traditional performance measures applies more
generally in that a positive correlation between non-traditional performance
measures and organisation performance was found for all firms in the study.

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