JIT and Process Cycle Time Efficiency (PCE) Zodiac Sound Co. manufactures audio systems, both made-to-order and more mass-produced systems that are typically sold to large-scale manufacturers of electronics equipment. For competition reasons, the company is trying to increase its processing cycle efficiency (PCE) measure. As a strategy for improving its PCE performance, the company is considering a switch to JIT manufacturing. While the company managers have a fairly good feel for the cost of implementing JIT, they are unsure about the benefits of such a move, both in financial and nonfinancial terms. To help inform the ultimate decision regarding a move to a JIT system, you've been asked to provide some input. Fortunately, you've recently attended a continuing professional education (CPE) workshop on the costs and benefits of moving to JIT and therefore feel comfortable responding to management's request.

Required:

1. Define the terms value-added time, non-value-added time, and process cycle efficiency (PCE). Conceptually, how are activities included in the first two categories determined? (That is, how does one know what activities are considered "value-added"?)

2. Define the terms cycle time and processing (manufacturing) time. How can processing time be broken down further?

3. Given the estimated data below, calculate and interpret the PCE for both the current manufacturing proc- ess and the proposed process after implementing JIT:

4. What is the percentage change in average PCE anticipated under JIT?

5. What additional nonfinancial performance indicators might management monitor in conjunction with the move to JIT?