JUST-IN-TIME SYSTEM IN ECONOMIC ORDER QUANTITY

Just-in-time(JIT) is an approach to inventory management and control in which inventories are acquired and inserted in production at the exact times they are needed."

In certain industries, the production process lends itself to just-in-time (JIT) inventory control. As the name implies, the idea is that inventories are acquired and interested in production at the exact times they are needed. This required a very accurate production and inventory information system, highly efficient purchasing, very reliable suppliers, and an efficient inventory-handling system. While raw-materials inventory and in-transit inventory can never be reduced to zero, the notion of "just-in-time" is one of extremely tight control so as to cut back on inventories. The goal of JIT system, however is not only to reduce inventories, but to continuously improve productivity, product quality, and manufacturing flexibility.

At first glance, it might seem that a JIT system- in which inventories would be reduced to a bare minimum and the EOQ for a particular item might approach one unit-would be in direct conflict with our EOQ model. However, it is not. A JIT system, on the other hand, rejects the notion that ordering costs(clerical, receiving, inspecting, scheduling, and/or setup costs) are necessarily fixed at their current levels. As part of a JIT system, steps are continuously taken to drive these costs down. For example,

• Small-sized delivery trucks, with predetermined unloading sequences, are used to facilitate economies in receiving time and costs.
• Pressure is placed on suppliers to produce raw materials with "no defects" thus reducing (or eliminating) inspection costs.
• Products, equipment, and procedures are modified to reduce setup time and costs.

By successfully reducing these ordering-related costs, the firm is able to flatten the total ordering cost curve.