"A Comparative Analysis of Inventory Costs of JIT and EOQ Purchasing"

This reading is a very interesting and educational article due to the fact that we are going through a period in which eliminating costs is extremely important for the productivity of businesses. The basis of this article is to alert the reader as to background of the JIT system and the EOQ system and list several instances in which JIT systems are preferred.

As you may already know, an efficient JIT system will lower manufacturing costs, inventory holding costs, eliminate bottlenecks in the production process, etc. The JIT system is able to lower all of these costs because there is not any "wasted" materials laying around. Only what is needed at a certain time is on hand. Transportation costs are also lowered under the JIT system becuase facilities and warehouses have to be located closer to the end customer or manufaturer as to make sure that they have what they need when they need it (economies of scope). This means that there will be more frequent deliveries, but the benefits of these deliveries almost always outweigh the costs of the EOQ system.

While the JIT system can be beneficial to firms, it can also be detrimental. Although aspects of the JIT system are good, the philisophy of most firms is still to produce large batches of products. Whether these products are stored with the supplier or at your firm, the firm is more than likely going to have to handoff some of those holding costs to the customers. This could ultimately make you decide to go with the EOQ model.

JIT systems work best when the product is of high value, transporation costs can be lowered, when holding costs and ordering costs can be lowered, and when there is a good chance of the product being damaged if it were sent in a huge order. The only way that these savings can occur is if the system is streamlined and implemented as efficiently as possible. Any problems with the system could result in the EOQ system becoming the system of choice.

I hope that this has given a detailed look into the advantages of the JIT system over the EOQ system given the importance that price is beginning to have in today's economy. Feel free to read the article to gain even more knowledge in terms of JIT and EOQ.

Michael Cook