Business finance
Chris daadivisibility
…
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This paper discusses the Economic Order Quantity (E.O.Q) model and the Just In Time (J.I.T) inventory management technique. The E.O.Q is highlighted for its cost-minimizing benefits during inventory replenishment but is challenged by issues such as fixed costs and loss of bulk discounts. Meanwhile, the J.I.T technique emphasizes efficiency and waste reduction by synchronizing order fulfillment with actual demand. While it offers advantages like reduced inventory costs and improved responsiveness to customer needs, it also presents challenges related to coordination and risk management.
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MJSS V5N10 June 2014 - proofreading
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The advantages of the (E. O. Q) are:-
The main advantage of the economic order quantity is that it helps in cost minimization when ordering inventory. This technique helps especially when the firm has exhausted the inventory and wants to replenish the stock. This happens when a firm runs out of stock and orders for new stock. There is a period that they have to wait for the products to arrive even when they ordered immediately. However, if the firm takes into consideration the reorder dates and takes into account the suppliers' reliability, it can solve this problem.
b. Fixed ordering and holding cost
This is brought about by the assumption that each unit has a cost of stockpiling of security and holding until reorder. This holding cost makes many companies to incur little profit since the units are held for some time.
c. Relatively uniform and known demand rate
The E.O.Q technique makes firms to order for products at a familiar and same amount of products. This makes the firms not to get some of the discounts that suppliers give to customers who buy a lot of inventory.
Just in Time Technique
The just in time technique is where inventory strategy firms employ people to increase efficiency and decrease waste by receiving goods only when they are needed in the production process, thereby reducing the inventory costs.
This inventory technique requires that producers are able to accurately forecast demand.
Advantages if Just in Time Technique are:a. Customer needs
The just in time technique is efficient because it reduces inventory levels, and enables companies to order for inventory according to the customer needs.
b. Inventory costs
The minimization of inventory is very beneficial to firms since it reduces the holding space and staff required. Due to this reduction of costs firms opt to invest their savings in business growth and other arising opportunities.
Disadvantages of Just in time (J.I.T) are:a. Coordination
The J.I.T technique involves a lot of coordination between retailers and suppliers in the distribution channel. Retailers often put their trust in suppliers by having software put in their I.T systems which are linked to their suppliers in order for them to monitor the inventory levels at the various stores and distribution centers. This coordinated efforts lead to building up of technology infrastructure which is expensive.