Question

If a firm uses a just-in-time inventory system, what effect is that likely to have on the number and location of suppliers? What are the advantages and disadvantages of a just-in-time inventory system?

Answer 1

Answer

Just in time inventory system

Just in time is inventory control method .just-in-time inventory system aligns raw-material orders from suppliers directly with production schedules.Manufacturing organisation use this inventory control method  to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs.

In just in time inventory system ,production manager has to accurately forcast the supply of inventory need.He has to keep a seemless contact with the supplier for receiving inventory on time.For this accurate forcast needed according to demand how many times inventory needed,quickly swtiching to other supplier in case of non availability of supplier with one supplier.In just in system a proper coordinationis needed for the JIT to work.The JIT inventory supply system is a shift away from other just-in-case strategies, in which producers hold large inventories to have enough product to absorb maximum market demand.

Advantage of JIT

Cost efficiency in holding inventory.Just-in-time (JIT) inventory is a technique  that manufacturers utilize to increase efficiency and decrease waste by receiving goods only as they are needed in the manufacturing process, thereby reducing the cost of inventory.

Over production cost eleminated

JIT avoids the waste associated with overproduction, waiting for material and holding excess inventory.

Overhead expensed got reduced

The just-in-time inventory model lets manufacturers reduce their overhead expenses while always ensuring that parts are available to manufacture their products.

No warehouse expenses

warehouse expenses got reduced as inventor storing not needed.

Disadvantage of JIT

Expensive

JIT procedures can require a major overhaul of your business systems - they may be difficult and expensive to introduce.

Risk of running out of stock: JIT carrying little stock, it is important to have the correct procedures in place to ensure stock can become readily available, and quickly. otherwise it hammpers profit.