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Question - The XYZ Company has successfully implemented JIT internally and now wishes to convert one of its main suppliers to JIT as well. As a test of feasibility, the firms have selected one item made by this supplier for XYZ. The supplier currently manufactures and delivers this item in batches of 7,200 with a lead time of 15 days. The current price paid is $180/unit, and the average usage rate at XYZ is 300 units per day. Under JIT, the kanban container size would be 120 units, 10 percent safety stock, and lead time of 15 days.
a. What is the current investment in work-in-process inventory for this item at XYZ?
b. What is the change in investment if the proposed JIT system is implemented?
c. A consulting study indicates that for an additional $150,000 investment, lead time could be reduced from 15 days to 7 days. Evaluate the feasibility of this investment.
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