THE ROLE OF JUST-IN-TIME IMPLEMENTATION IN RELATION TO

PERFORMANCE: AN EXPLORATORY STUDY

By
Che Ruhana Isa (PhD)*
Tay Yew Keong
Faculty of Business & Accountancy
University of Malaya

ABSTRACT

This study investigates the relationship between the level of just-in-time (JIT)
implementation and performance. The study employed self-administered questionnaire
survey to collect data from Malaysian manufacturing companies. The statistical tests
provide empirical evidence to support the predictions that the level of JIT implementation
is related to perceived performance. The results reveal that the level of JIT
implementation is positively related to both financial and non financial performance.

*Corresponding author
email: [email protected]

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 THE ROLE OF JUST-IN-TIME IMPLEMENTATION IN RELATION TO

PERFORMANCE: AN EXPLORATORY STUDY

1. INTRODUCTION

Over the last two decades, firms globally are facing increasing pressures to attain and

sustain their competitive position and performance. To survive in in today’s dynamic and

competitive markets, firms need to come up with strategies consistent with its

environmental demands for efficiency, effectiveness and customer responsiveness. In

view of the escalating threats from global players, especially those from China,

Malaysian manufacturing firms are compelled to continuously review their strategies and

devise plans to improve their operations if they were to survive and prosper. Currently,

products from China have flooded the Malaysian market at very competitive prices and

for the Malaysian manufacturers to counter the impending threats successfully; they

need to be more efficient in their operations so that their manufacturing performance

could be improved.

One of the strategies to improve manufacturing performance is adoption of world-

class, lean and integrated manufacturing strategies such as just-in-time (JIT) system

(Fullerton & McWatters, 2002). Some of the benefits of JIT would allow companies to

reduce costs, meet customer’s demands, stay ahead of competitors and minimise slack

resources which are critical for survival in the increasingly competitive market (Cobb,

1993). The focus of JIT is cost reduction and excellence through continuous

improvements in the business process by redefining the structural and procedural

activities performed within an organization. To achieve this, constant evaluation of the

changes in quality, setup times, defects, rework, and throughput time is imperative.

The purpose of the research is to examine the level of JIT implementation among

Malaysian manufacturing firms and to evaluate empirically the relationship between the

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JIT implementation and performance. Thus far, the literature review reveals that there is

no published study on JIT in Malaysia. The findings of this study will be able to improve

our understanding on the extent of JIT implementation among manufacturing firms in

Malaysia. In addition, this study will shed valuable insights on the relationship between

JIT implementation and performance which will assist us in to determine whether JIT

firms have a competitive edge to compete in today’s intense competitive environment.

The following sections of this paper is organised as follows. The next section

examines the prior literature related to JIT and organizational performance and outlines

the research hypotheses. Section 3 describes the research method. Section 4 presents

and discusses the findings. The final section summarizes the study, and identifies

limitations and further research directions.

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2. LITERATURE REVIEW

2.1 The JIT Philosophy

JIT philosophy was developed in Japan by Toyota Motor Company with the aims to

continuously eliminate waste and improve productivity (Ansari and Modarress, 1990).

The essence of JIT is elimination of waste through elimination of non-value added

activities in purchasing, manufacturing, distribution, and manufacturing support activities

of the manufacturing process. JIT manufacturing is a demand-pull system where

products are produced when orders are received from customers and only in the

quantities demanded by the customers. JIT manufacturing is defined as a repetitive

production system in which processing and movement of material and goods occurs just

as they are needed, usually in small batches (Stevenson, 1996). This manufacturing

system includes practices of preventive maintenance, cellular manufacturing, continuous

flow, smaller lot sizes and kanban (Foster & Hongren, 1987; Fullerton & McWatters,

2002). Thus, manufacturing plants have to be reorganized so that raw materials and

purchased parts are delivered to the plant right before they are entered into the

production process.

JIT approach to manufacturing must consist of the following building blocks:

company-wide commitment, proper materials at the right time, supplier relationships,

long term contract, quality and personnel (Ansari and Modarress, 1990). Top

management support and commitment from all levels of staff are among the most

important factors that ensure JIT success through adequate financial commitment and

proper planning before implementation of a JIT manufacturing system (Shannon, 1993).

JIT purchasing system must be in place to support the JIT manufacturing system. In this

system, materials are purchased in small quantities from few reliable suppliers and

delivered frequently just before they are needed for production. By reducing the number

of suppliers and improving relationships with these valued partners, JIT firms will benefit

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from costs and time saving. By ordering small batches than are consumed almost as

soon as they arrive, an organization can benefit from space saving which resulting from

holding much less inventory as well drastic reduction in the costs associated with holding

large amounts of inventory, which are in most cases higher that the freights costs and

smaller discounts associated with the smaller lot size purchases. These cost savings

can be then allocated to alternatives uses to improve the overall success of the

organization (Ptak, 1997).

2.2 JIT and Performance

Successful application of the JIT philosophy of cost reduction is argued to lead to

improvements in both financial and non-financial performance such as lower production

costs, higher and faster throughput, improved product quality and on-time delivery of

products, which should eventually result in improved profitabilty (Fullerton et al., 2003). It

has been argued that JIT adoption might lead to improved operations but does not

necessarily always result in higher profitability (Johnson and Kaplan, 1989) particularly

over a short term period. Cooper (1995) argues that companies should not expect JIT

implementation to result in financial benefits over a short term period but they could

instead learn from the Japanese counterparts who emphasize more on stability, long-

term reliability, and growth. Comparing Japanese and US transplant manufacturing

firms, Nakamura et al. (1998) show that the Japanese firms’ short term profits were

consistently lower. Consistent with this view, Johnson and Bröms (2000) reveal that it is

Toyota’s manufacturing strategies which promote growth and stability over the long run

and not the achievement of short-run financial targets that contribute to its stable

performance.

Thus, the focus on financial performance alone is not be sufficient for firms to

survive and excel in today’s market. Kaplan (1984) proposes that non-financial

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measures of manufacturing performance must also be considered: quality, inventory,

productivity, innovation, and workforce. Manufacturing companies must be totally

committed to quality; that is, each product must be manufactured strictly according to

specifications. The importance to include non-financial indicators in addition to financial

indicators in performance measurements is discussed and introduced as The Balance

Scorecard concept by Kaplan and Norton (1992). The basic premise of the Balance

Scorecard concept is that an exclusive reliance on financial measures in a management

system is insufficient. A performance measurement system based solely on financial

reporting indicators has limitations because it focuses on past performance and takes a

short-term view of strategy. Exclusive reliance on these indicators could lead managers

to focus on short-term performance at the expense of the opportunity to evaluate and

develop strategies for long-term value creation. The Balance Scorecard approach

maintains measures of financial performance, but supplements these with measures of

the lead indicators or key success factors of future financial performance.

Previous studies that examined the direct relationship between JIT

implementation and financial performance show mixed results (Balakrishnan et al., 1996;

Huson and Nanda, 1995; Inman and Mehra, 1993; Kinney and Wempel; 2002). Inman

and Mehra (1993) reported a significant correlation between self-reported improvement

in performance and the adoption of JIT practices. On the other hand, Balakrishnan et al.

(1996) found that there were no differences in return on assets (ROA) among JIT and

non-JIT firms. However, when the sample was stratified as high or low customer

concentration and different cost structures, JIT firms with low customer concentrations

showed significantly higher ROA than non-JIT firms. Extending the study by

Balakrishnan et al., Kinney and Wempe (2002) used a similar matched-pair research

design to investigate the profitability of JIT and non-JIT firms. Inconsistent with the

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earlier study, their results indicate that the ROA of the JIT firms fell significantly less

compared to the non-JIT firms when tested after three post-JIT adoption years.

A more recent study by Fullerton et al. (2003) provides empirical support for the

relationship between the degree of JIT practices used and profitability. In this study, JIT

implementation was measured using an 11 item instrument comprising three

dimensions: JIT manufacturing, quality and unique JIT. In addition, three separate

measures of profitability were used: return on sales (ROS), ROA and cash flow margin

(CFL). They found positive significant relationships between JIT manufacturing practices

and profitability supporting the premise that firms that implement higher degrees of JIT

manufacturing practices should perform better than those who do not. However, in

contrary to expectation, the degree of JIT quality practices was inversely and

significantly related to firm profitability. They argue that these results are “not conclusive

since they imply either that the degree of implementation of JIT quality indicators

reduces profitability, or firms with low profitability recognize their strategic disadvantage

and increase their focus on quality improvement by implementing JIT quality processes.”

(Fullerton et al. 2003, p.400). On the other hand, JIT unique measure shows no

significant relationship with profitability. The earlier studies indicate inconsistent and

inconclusive evidence on the nature of the relationship between JIT practices and

profitability and this warrants further investigation.

2.3 Research Hypotheses

The aims of this research are to examine the level of JIT implementation among

Malaysian manufacturing firms and to evaluate empirically the relationship between the

JIT implementation and performance. Hence, the research hypotheses ensue:-

• H1 = There is a positive relationship between the level of JIT implementation and

business performance.

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 • H1a = There is a positive relationship between the level of JIT implementation

and financial business performance.

H1b = There is a positive relationship between the level of JIT implementation

and non-financial business performance.

3. RESEARCH METHOD

3.1 Survey and Sample Design

The research was undertaken using a survey design, where primary data were obtained

from companies operating in the Malaysian manufacturing sector. To test the research

hypotheses, a survey questionnaire was designed to collect specific information about

the manufacturing operations, JIT implementation, perceived firm performance and the

characteristics of the respondents and the sample firms. Questions were either

categorical or interval Likert scales. The survey instrument was subjected to a limited

pre-test to check for readability, completeness and clarity. The feedback was sought

from several academicians and managers of five manufacturing firms who are familiar

with JIT practices. Relevant and appropriate changes were made accordingly.

The sample comprised manufacturing companies listed in the 2005 Federation of

Malaysian Manufacturers (FMM) Directory. Due to time and cost constraints 1 , a total of

150 companies were conveniently selected. Questionnaires were distributed through

postal mail and email to manufacturing companies in Klang Valley and Northern Region

of Peninsular Malaysia. A self addressed envelope was enclosed with the questionnaire

to enable the respondents to return the questionnaire. Follow-up telephone calls were

made to ensure that the companies received the questionnaires.

The data were processed using SPSS statistical package. The findings will be

presented in the following order: profile of the sample firms and the respondents,

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This project was part of an MBA course requirements and was carried out in a period of 3 months.

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descriptive statistics of the main variables and, lastly, the statistical associations

between JIT implementation and performance.

3.2 Measures of JIT Implementation and Performance

JIT implementation is measured using a seven item instrument to measure the

extent of JIT practices adopted by the sample firms using a five point Likert scale

ranging from 1 (least extent) to 5 (greatest extent). Based on the literature, six

measurable manufacturing practices that reflect JIT practices were selected to represent

JIT implementation for the purpose of this study. Although not all inclusive, these six

practices are: sampling check, supplier access to production schedule, manufacture

after receive order, use single cell production, quality checks on raw material, and

deliver goods based on company’s production schedule.

Self-reported business performance as used Mia and Clarke (1999) and

Khandwalla (1972, 1977) is used to measure business performance. Mia and Clarke

(1999) define business unit performance as “the extent to which the unit had been

successful in achieving its planned target(s), such as achievement of planned

productivity, costs, quality, delivery schedule, sales volume, market share, and level of

profit”(p. 151). A five-point Likert scale, 1 representing ‘poor performance’ and 5

representing ‘excellent performance’, was used. Managers were asked to indicate their

last three years’ actual performance compared to the planned performance by

considering only those performance targets that are relevant to their firms. Mia and

Clarke (1999) argue that this broad approach of performance assessment has an

advantage over the ‘return on investment’ (ROI) or input output ratio method of

performance measure because it incorporates all aspects (qualitative and quantitative,

financial and non-financial) of business performance. In contrast, the conventional

performance evaluation methods such as ROI and input/output ratio consider only the

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quantitative aspects. Self-reported measure of performance is used in other studies such

as Govindarajan (1988), Govindarajan and Fisher (1990), and Chenhall and Langfield-

Smith (1998) in which respondents were asked to assess their business’s performance

relative to competitors over the last three years. In this study, respondents were asked to

rate their firms’ performance over the last three years using a five-point Likert scale, 1

representing ‘poor performance’ and 5 representing ‘excellent performance’. An 8-items

instrument comprising the following items was used: profit, cost savings, on-time

delivery, improvement in manufacturing time, product quality, space saving,

improvement in purchasing lead time and product innovation.

4. RESULTS AND DISCUSSION

4.1 Profile of Respondents and Companies

A total of 87 questionnaires were received but 11 were not valid or were incomplete and

as such were rejected, and finally, 76 questionnaires were selected for final analysis

giving a response rate 50.6%. Table 1 shows the profile of the respondents. In terms of

age, the largest group of respondents were 31 to 40 years old (44.7%), followed by 21 to

30 age group (42%), and 11.8% of the respondents from 41 to 50 years old. There were

35 (46.1%) male respondents and 41 (53.9%) female respondents.

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 Table 1
Profile of Respondents
Backgrounds Categories Frequency Percentage
Age 21 to 30 years old 32 42 %
31 to 40 years old 34 44.7 %
41 to 50 years old 9 11.8 %
above 51 years old 1 1.3 %
Gender Male 35 46.1 %
Female 41 53.9 %
Education Diploma and Advance Diploma 2 2.6 %
Background Degree 61 80.3 %
Master 9 11.8 %
Professional Course 4 5.3 %
Length of 0 to 2 years 10 13.2 %
service above 2 to 5 years 26 34.2 %
above 5 to 10 years 18 23.7 %
more than 10 years 22 28.9%
Occupation Director 1 1.3 %
Level Engineers 28 10.5 %
Managers 29 38.2 %
Executives 38 50.0 %

With regards to educational background, the majority of the respondents (80.3%) had a

degree as shown on Table 1. More than 50% of them have served their companies for

more than 5 years. A majority of the respondents were in the middle management group

as 88.2% of them were managers and executives.

Table 2 shows the sample firms were from the various industries. In terms of

annual sales, more than half of the firms had less than RM30 million of sales and foreign

firms represented almost half (42%) of the respondents. Most of the companies (51.3%)

have an average of less than 500 full time staff. Almost 60% of the sample firms were in

the small and medium size category with shareholders’ equity of less than RM25 million.

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 Table 2
Profile of Sample Firms
Backgrounds Categories Frequency Percentage
Types of Industry Foods & Beverages 9 11.8 %
Textiles & Clothing 9 11.8 %
Wood products 4 5.3 %
Chemical 8 10.5 %
Metal products 6 7.9 %
Rubber products 2 2.6 %
Electrical & electronics 10 13.2 %
Plastic products 3 3.9 %
Others 25 32.9 %
Annual Sales Under RM 5 million 4 5.3 %
RM 5 to under RM 20 million 27 35.5%
RM 20 to under RM 30 million 17 22.4 %
RM 30 to under RM 50 million 7 9.2 %
above RM 50 million 21 27.6 %
Ownership Local 29 38.5 %
Foreign 32 42.1 %
Joint Venture 15 19.7 %
Total Shareholders Less than RM 2.5 million 8 10.5 %
Funds Between RM 2.5 – RM 25 million 36 47.4 %
Between RM 26 – RM 50 million 22 28.9 %
Above RM 50 million 10 13.2 %
Full Time Below 500 39 51.3 %
Employees 501 – 1000 25 32.9 %
1001 – 1500 5 6.6 %
Above 2500 7 9.2 %

4.2 Descriptive Analysis and Reliability

Table 3 shows the descriptive statistics for JIT implementation variable. The overall

mean is 3.42 suggesting a moderate level of JIT implementation for the whole sample.

The highest mean value (3.75) is shown for the item ‘delivery of goods based company’s

production schedule’ while the lowest (2.66) is for ‘supplier access to production

schedule’, suggesting the most and the least common JIT practices among the sample

firms. The

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 Table 3
Descriptive Statistics for JIT Implementation Variable
Item Mean Standard Actual Range
Deviation Min Max
Overall 3.42 0.65 1.43 5
Sampling check 3.63 0.85 2 5
Supplier access to production 2.66 1.14 1 5
schedule
Manufacture after receive order 3.63 1.02 1 5
Use single cell production 3.36 1.26 1 5
Quality checks on raw material by 3.61 1.06 1 5
suppliers
Deliver goods based on 3.75 1.01 1 5
company’s production schedule
Cronbach alpha: 0.612

Table 4 displays the descriptive statistics for self-reported or perceived business

performance. Table 4 indicates that majority of the variables’ mean values are higher

than 3.0 except for innovation (mean=2.79). The mean for financial performance (3.33),

represented by profit and cost saving, is slightly higher than the mean for non-financial

performance (3.18). These results suggest that on average, most of the respondents felt

that their firms were performing at above average compared to their competitors

especially with respect to factory or space saving (mean=3.42) and cost savings

(mean=3.33). The firms also perceived that they were performing above average in

terms of on-time delivery (mean=3.28) and product quality (mean=3.28).

Reliability of the measures was checked using Cronbach alpha reliability of

coefficient based on Nunnally’s (1978). The independent variable (JIT implementation)

was measured by 6 items. The value of Cronbach alpha is 0.612. The dependent

variable (performance) was measured by eight items and the Cronbach alpha is 0.628.

As the alpha value was above the average value of 0.600, the internal consistency of the

reliability of these measures are reasonably good.

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 Table 4
Descriptive Statistics for Business Performance
Criteria Mean Standard Actual Range
Deviation Mini Max
Overall Performance 3.20 0.43 1.63 4.13
Financial: 3.24 0.67 2.00 4.50
Profit before Tax 3.14 0.88 1 5
Cost Savings 3.33 0.76 1 4
Non Financial: 3.18 0.47 1.33 4.13
On-time delivery 3.28 0.87 1 5
Manufacturing time 3.18 0.62 2 4
Product quality 3.28 0.76 2 4
Space saving 3.42 0.90 1 5
Reduce purchasing time 3.14 0.91 1 5
Innovation 2.79 0.85 1 4
Cronbach alpha: 0.628

4.3 Hypotheses Testing

Before running the regression analysis, correlation analysis was carried out to obtain

some indications whether JIT and performance are correlated. The results of the

analysis is shown in Table 5.

Table 5
Correlation between JIT Implementation and Performance
Financial Non-
Overall performanc financial
Performanc e performanc
MEANJIT e e
MEANJIT
1
Overall Performance 0.488
(p=0.000) 1

Financial performance 0.438 1

0.929
(p=0.000)
(p=0.000)
Non-financial performance 0.332 0.281 1
0.615
(p=0.000) (p=0.014)
(p=0.000)

The results indicate the presence of significant correlations between JIT implementation

and overall performance (r=0.488) at significance level 0.01. The correlation between

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financial performance (profit and cost saving) and JIT implementation is also significant

(r=0.438) at significance level 0.01. Similarly, JIT implementation is significantly

correlated with non-financial performance (r=0.332) at significance level 0.01. These

results suggest the two variables are significantly correlated thus initial support for

further analysis to test the hypotheses.

To test the research hypotheses, regression analyses were carried out to

examine the relationship between JIT implementation and performance. Table 6 displays

the results of regression analysis. The regression results indicate significant and positive

relationship exists between JIT implementation and overall performance thus lending

support to Hypothesis 1. Similarly, JIT implementation is positively and significantly

related with financial as well as non-financial performance. Hence, sub-hypotheses H1a

and H1b are also supported. The results also indicate JIT implementation explains

almost 24%, 11% and 18%, respectively, of the changes in overall, financial and non-

financial performance.

Table 6
Summary of Results of Regression Analyses
Dependent Variable: Performance

Independent
Variable Overall Financial Non-financial
Performance performance performance

JIT Implementation 0.488*** 0.332*** 0.438***

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R 0.238 0.110 0.192
Adj. R2 0.227 0.098 0.181
F 23.079*** 9.159*** 17.585
***p≤ 0.01, **p≤ 0.05, *p≤ 0.10

To explore further the roles of each JIT implementation variable in predicting the

performance, multiple regression analyses were carried out. The regression results

shown in Table 7 show overall performance is significantly related with 3 variables

(sampling check, supplier access to production schedule and supplier deliver goods

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based on company’s production schedule) at significance level of 0.05. With regards to

financial performance, only one factor ‘supplier access to production schedule’ is

significantly related at significance level of 0.001. On the other hand, non-financial

performance is related to three factors at significance level of 0.05: sampling check,

quality checks on raw material by suppliers, and supplier deliver goods based on

company’s production schedule.

Table 7
Results of Multiple Regression Analyses
Dependent Variable: Performance
Independent Variable: JIT
Overall Financial Non-financial
Implementation
Performance performance performance
Sampling check 0.311** 0.196 0.287**

Supplier access to production 0.250** 0.486*** 0.100

schedule
Manufacture after receive order 0.000 0.042 -0.020
Use single cell production -0.128 -0.148 -0.86
Quality checks on raw material by 0.203* -0.048 0.270**
suppliers
Deliver goods based on 0.297** 0.187 0.274**
company’s production schedule
R2 0.343 0.207 0.333
Adj. R2 0.286 0.138 0.275
F 6.004*** 3.008** 5.734***
***p≤ 0.01, **p≤ 0.05, *p≤ 0.10

5. CONCLUSION

The main purpose of this study is to examine whether JIT implementation is related to

business performance. It is hypothesized that JIT implementation is positively related to

overall, financial and non-financial performance. The survey results reveal a moderate

level of JIT implementation among the sample firms. In terms of level of performance,

generally, the sample firms reported above average performance in all performance

indicators, except innovation.

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 Overall, the results of correlation and regression analyses provide support to the

hypotheses, suggesting JIT implementation is one of the predictors of performance in

manufacturing firms in Malaysia. The results are consistent with the findings of other

empirical studies such as Inman and Mehra (1993) who reported a significant correlation

between self-reported improvement in performance and the adoption of JIT practices.

However, the results of studies which define financial performance as reported

profitability or ROA show mixed results (Balakrishnan et al., 1996; Fullerton et al., 2003;

Huson and Nanda, 1995; Inman and Mehra, 1993; Kinney and Wempel; 2002). The

inconsistent findings on the nature of the relationship between JIT practices and

profitability suggests further investigation in this area of research is much warranted.

The results of the study, however, are subject to the several limitations. First, the

study is associated with the usual limitations of cross-sectional survey research, namely

data collected at a single point of time. Second, this study covers only manufacturing

firms and uses a non-random sample. It is possible the effects of JIT implementation on

performance may be different for other sectors, such as services sector. Third, a majority

of the respondents in the survey were middle-level managers and were not the senior or

top-level managers as initially planned. Thus it may be possible that the respondents

might have been unfamiliar with the questionnaire terms used to describe JIT

implementation and performance and also there may be differences in perceptions

between the two groups of managers. In addition, the sample size in this study is

relatively small which limits the use of more powerful statistical tests as well as

generalisability of the research results. Fourth, the survey instruments used to measure

JIT implementation and performance were developed based on the relevant literature,

they might not have been completely indicative of actual company practices. Lastly, as

indicated by the R2 and adjusted R2 in the regression models, there may be other

important predicting variables that could be added to model to improve its explanatory

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power.

In view of the limitations above, future research could investigate further into the

nature and degree of JIT implementation through the use of bigger sample and to

include other sectors such as the service industry. The instruments for the JIT

implementation and performance could be further improved.

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