Anna de Noailles, the plant manager at Electro-Sons, calls Pauline Eluard, the plant controller, into her office. She had just finished reviewing Eluard’s report on the financial benefits from implementing JIT. The report described the following annual benefits and costs.
‘We have been working on getting organised for JIT for almost a year now. Some of the financial benefits you have calculated seem optimistic to me. I don’t think we are quite there yet, but if you continue to use the financial numbers you have, we would be forced to implement JIT sooner than we should. Please look over the numbers and see what you can do. I think some of the numbers are rather soft anyway. I also understand that plant profitability might take a hit in the year JIT is first implemented. I retire next year and I don’t want to go out with a losing record.’ Eluard is quite certain that her numbers are correct. She is also aware that Noailles would lose most of her performance bonuses if plant earnings decrease next year. It does not seem fair to her that Noailles should be penalised in the short term for what is in the long-run interest of the company.
1. On the basis of Eluard’s report, calculate the effect of JIT implementation on plant profitability in the first year after implementation and in subsequent years. On the basis of Eluard’s report, should Electro-Sons implement JIT?
2. Is Noailles correct in characterising some of the financial benefits as ‘soft’? Which items do you think she is referring to? If the benefits you identify as ‘soft’ are not realised, should Electro-Sons implement JIT?
3. Is Noailles being unfairly penalised if she implements JIT? What should Noailles do? What should Eluard do?