bryris
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Joined: 07 Dec 2008
Location: United States
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Posts: 624
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| Posted: 14 Nov 2009 at 21:54 | IP Logged
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The formatting is fairly bad on this, tough to line everything up. However, here is what is happening:
A JIT system requires a company to place many more orders than a more traditional buffer reserve system. For example, if I needed one screw at a time to build a widget, I could theoretically set up a JIT system to deliver the next screw right into my hand as I need it. The side effect is LOTS of orders. Therefore, if ordering costs (cost per PO) is dropping, this side effect becomes less of a concern.
Conversely, if the price of holding screws in my warehouse is increasing for whatever reason, I would be tempted to keep as little inventory on hand as possible to reduce these storage costs. Therefore, the JIT system would become more attractive.
As the cost to warehouse drops, the less appealing JIT is. OTOH, if it costs $5 to order a screw (or multiple screws), I am going to most likely order more than a single screw per order up the point where storing the additional screws begins to increase my total costs.
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Topic: JIT
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