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Unformatted text preview: 50). If its lead time is 2 days and
MAX wants to maintain a safety stock of 4 units, the reorder point for this item
is 12.8 units [(2 4.4) 4]. However, orders are made only in whole units, so the
order is placed when the inventory falls to 13 units.
The firm’s goal for inventory is to turn it over as quickly as possible without
stockouts. Inventory turnover is best calculated by dividing cost of goods sold by
average inventory. The EOQ model determines the optimal order size and, indirectly, through the assumption of constant usage, the average inventory. Thus the
EOQ model determines the firm’s optimal inventory turnover rate, given the
firm’s specific costs of inventory. Just-in-Time (JIT) System
just-in-time (JIT) system
Inventory management technique
that minimizes inventory investment by having materials arrive
at exactly the time they are
needed for production. The just-in-time (JIT) system is used to minimize inventory investment. The philosophy is that materials should arrive at exactly the time they are needed for production. Ideally, the firm would hav...
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