Question

1. If a firm uses just-in-time inventory system what effect is that likely to have on the number and location of suppliers? (200words)

2. Why might a firm keep a safety stock? What effect is it likely to have on carrying cost of inventory? (200words)

3. Why would a financial manager want to slow down disbursements? (200words)

Answer 1

Answer to Q#1 (First question in the list):

In inventory management system, there is a method called just in time (JIT) inventory method which refers to purchasing required inventory or materials or merchandise goods whenever it is needed instead of purchasing and holding inventory in advance. That is, inventory value will be always lower or even zero because materials are purchased for meeting out production requirement only. As a result, there will be zero ending inventories of materials or merchandise goods, as the case may be. It will help firm to save inventory carrying cost like warehouse rent, insurance on goods and warehouse, maintenance cost, etc.

In order to implement and follow just in time inventory method effectively, suppliers must be located very close to firm’s production facility in case of manufacturing unit because firm can place order for materials as and when it is required easily on time.

Also, there will be fewer suppliers of materials concerned because firm can effectively choose best among the fewer group to make sure timely supply of materials at affordable cost as and when material requirement arises.

Therefore, if a firm uses just-in-time inventory system, number of suppliers shall be fewer and location of suppliers must be very close to manufacturer or place at which production process is carried out.