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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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This document was uploaded on 01/19/2014.

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