Question

What are the benefits of  just-in-time purchasing (JITP)?

Answer 1

Mentioned below are the benefits of Just In Time Purchasing -

• It reduces the overall burden on keeping many warehouses & replenishing of stocks.
• JIT purchasing helps the companies as it allows them to sell a product before buying. It can be purchased from the third party & shipped directly to the customer.
• It has many benefits like it lowers the inventory holding costs - The companies can now purchase the inventory in short notice and hence the dependency on stocking goods at warehouses is reduced.
• There is no requirement to have unsold inventory taking up space & other resources of the firm.
• It makes it easier to halt production of a particular product type & shift to another depending on the customer demand.

Other benefits -

Technology & long term contract are important factors to ensure that maximum benefits are derived.

• It is beneficial as it leads to improved cash flow. Since the firms need not store larger volumes of inventory at all times the overall capital investment & expenditure is drastically reduced.
• The same capital expenditure can be used in other places.
• Another reason or why it works is because the firm has less risk of unwanted stock left sitting at the number of warehouses.
• Technology allows to reduce the ordering & carrying cost.

Hence it leads to a large reduction in warehouse & inventory investments and also reduces the scrap costs.

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