Question

1. Compare and contrast the two types of inventory management and explain with examples why one is more effective over the other for an Original Equipment Manufacturer?

Answer 1

Just-in-Time Management

JIT was developed in Japan during the era of 1960s to 197s. he ain concept of this inventory model is that the raw materials and equipment are ordered only when there is a demand order placed by the customer so that the cost of managing the inventory can be reduced to its minimum level. This method primarily focuses on controlling the storing cost and the different types of other costs associated with the excess inventory level. This mode is not suitable for those operations where the demand is unpredictable or there is a sudden increase in the demand as its inventory requirements may not be fulfilled by the suppliers with the least lead time.

Economic Order Quantity

This model mainly depends on lacing the order of the equipment or raw material by determining the number of units that are important to be maintained by the company in the inventory that can reduce the overall cost of inventory with the assumption that the demand for the product remains constant. The main costs in this will include holding and setup costs. The focus of this model is to have the right order quantitate per batch so that the company needs not to place the orders too frequently and at the same time there is no excess inventory level.

If we look at the above two models then EOQ model will be more suitable for Original Equipment Manufacturer as it provides better control of inventory as the company will have an adequate level of inventory that not only minimizes the overall cost but also ensures the availability of minimum level of inventory so if there is any variation in demand, that can be met more precisely in comparison to JIT