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Hello Tutor. Hope you are doing well. Can you please tell me, in case an organisation uses JIT approach.
Whether the cost associated to the following activities would increase or decrease.
i) The Cost of Recording the Inventory.
ii) Material Handling Cost.JIT production systems cut inventory costs because manufacturers receive materials and parts as needed for production and do not have to pay storage costs.
The JIT model reduces the costs of procuring, managing and storing excess raw materials and inventory. This results in a higher inventory turnover which in turn prevents inventory from sitting in your warehouse for too long and becoming obsolete.
You can also receive and store deliveries in the smallest possible quantities, virtually eliminating excess raw material inventories. Local sourcing ensures that your suppliers are located near your company’s production facilities, enabling timely deliveries and reducing the need for safety stock.Thankyou for the brief summary of the JIT Tutor :).
But as you have mentioned “JIT model reduces the costs of procuring”. Isn’t that false. Because since I’ll be placing order only when i need to inventory for production. Therefore the Inventory Ordering Cost shall increase.
As the number of orders placed would increase.
And I’m still a bit confused w.r.t Recording Cost, shall it also increase as i might have to record the incoming and outgoing is inventory multiple times
Cost of procurement means more than order costs.
Your cost of holding goes down with JIT, you don’t hold any buffer under JIT.The efficiency and cost saving of JIT and holding costs reductions are likely to out way the increase in order cost.
If its say a large manufacturer they are likely to have more control over their supply chain which means they can force the cost of ordering to be kept low.
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