Reference no: EM132455318

The JIT system is alluded to as the just-in-time system. This system is based on the principle that inventory should arrive just as needed for production in the quantities needed. JIT implies that companies should have no or minimal inventory and items should be produced when needed. In this system if any defects occur orders could be delayed when getting to the customer and they cannot rely on inventory to cover their defects due to the method not supporting having inventoried. Any defects must be eliminated in the production processes. This method also requires for the company to have strong relationships with its suppliers due to frequent orders. Some orders are placed more than once a day. They must choose a supplier who can meet the demands of frequent deliveries with high volume and being on time. JIT methods should have numerous suppliers due to strikes of workers or suppliers declaring bankruptcy. As well as having good relationships with their suppliers they must have good relationships with their own employees, as they are very vital to their company.

A JIT method relies on their employees to detect and correct any and all defects as soon as possible, which keeps them from having to hire additional employees such as a quality control inspector that would inspect the final product. They also want to cross train their employees so that they can always have a smooth and flexible production flow. If employees are cross-trained incidents like General Motors when their employees in a department went on a strike they won't run out of products and the business will not stop. The JIT method relies on a kanban system, which is a pull system that uses cards to visually signal the need for inventory. When the kanban card is visible a stock employee notes to replenish the container with a specific number of parts then notes it.

A JIT company also must have a good relationship with their customers. When customers change their orders at the last minute it can slow down production and also slow down other customers' orders due to the change and needing to meet the quantity demanded. Companies that use the JIT method must understand their customers' needs but should offer incentives so that last minute changes do not occur. JIT implements ways of eliminating disruptions in production, reducing or eliminating nonviable-added activities, and minimizing inventory to achieve smooth, rapid production as their main goal. JIT saves in costs but are not made for every company. Stores such as retail like JC Penny are not good prospects for the JIT method, as they need inventory to have merchandise on the floor to sale. Automobile stores are companies that benefit from the JIT method due to not needing an inventory of a bunch of parts to satisfy the customer, as they are not easily able to change their mind on what they need.

The EOQ model is referred to as the economic order quantity model that is a mathematical model that minimizes the total of short-term ordering costs plus short-term carrying costs for the period. This model suggests having inventory and having uniform cycles of inventory ordering and inventory usage. The EOQ model has a formula to help reduce carrying costs. This formula is Q= the square root of 2DO/C. D represents the annual demand for inventory in units, O is the cost to place on additional order, and C is the cost to carry one additional unit in inventory. A lot of thought goes into the process to use the EOQ model, as you have to know how much to order and when to reorder. They must know the daily demand of the products. The company must know how much inventory is being purchased everyday and must be aware of the lead time which better describes as the number of days that passes from the origination of the order being placed and when the order is received. Automobile companies and companies like Apple do not benefit from the EOQ model as these companies sell items to be costumed ordered for each customer.

Both models have their own approaches but neither is perfect for every business. The JIT model would not be an appropriate method for stores such as Barnes and Nobles as they are a company that customers go in to browse and plan to take home the book they find interesting that day with them. Most people do not go into a store to find a book that they want to read but not be able to read it until a week later after it arrives in the store. By the time the book would arrive the customer would not want to read the book any longer. Department stores cannot run off of the JIT model and need inventory for their customers to choose from due to their orders not being customized. However, stores like Apple and automobile stores cannot operate off of the EOQ model as most purchases are customized to fit the customers' needs and every customer is different. Each business should weigh their needs, wants, and desires before choosing the correct model for their type of business.