A comparative analysis of inventory costs of JIT and EOQ purchasing

Author: Fazel, Farzaneh

Source: International Journal of Physical Distribution & Logistics Management, Volume 27, Number 8, 1997 , pp. 496-504(9)

Publisher: Emerald Group Publishing Limited

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Abstract:

Presents a mathematical model to assist companies in their decision to switch from the economic order quantity (EOQ) to the just-in-time (JIT) purchasing policy. Determines an upper limit for the JIT purchase price of an item below which the manufacturer will be better off using JIT purchasing. Also determines the annual demand level at which the costs of EOQ and JIT purchasing will be equal (the indifference point). For demand levels above this indifference point EOQ is the less costly method while JIT is preferable for demand levels below this point. The model also predicts that JIT will be preferred for inventory items with higher purchase price, holding costs, or ordering cost.

Keywords: Cost/benefit Analysis; Cost Variances; Economic Order Quantities; Just-In-Time; Purchasing

Document Type: Research article

DOI: http://dx.doi.org/10.1108/09600039710182680

Publication date: 1997-08-01