inventory Essentials - Which is Best, Jit Or Min-Max?

Company Max - inventory Essentials - Which is Best, Jit Or Min-Max?

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For clubs seeing to decree which inventory is best excellent to their needs, there are two methods that immediately come to mind; Jit (Just in Time) and Min/Max inventory management. The qoute occurs when clubs decree to conduct their inventory based on what they've seen work elsewhere, instead of matching their arrival to their company's firm model, and the customers and shop they service. Instead of running the right inventory approach, they run something they believe will work, but ultimately won't. So, given these two options, what should clubs pick and why?

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The Conditions for Jit

For those clubs who have large purchasing volumes of raw materials and parts, and who have constant, high volume demand for their products, then Jit is often the inventory formula of choice. Just in Time inventory supervision is based on the assumption that a firm can cut its inventory costs by ordering only what's needed, when needed. By managing inventory this way, the firm has less inventory remaining at the end of the month, because it makes sure to use most of what it takes in. Now, some clubs that run Jit, can get raw materials and parts in one day, and immediately ship that finished goods in the same day. The benefit of this arrival is that a firm gets paid from its own customers, right nearby the time it must pay its own invoices. For example, the firm orders parts and materials, receives an invoice, ships out a finished goods the same day, and invoices its own customers. Sounds great doesn't it? Well it can be, but there are some potential drawbacks, and they are listed below.

• Defective goods or Delivery Delays: Any poor capability goods or delivery delays are huge costs to Jit, because the firm likely doesn't have any safety stock available. Try explaining that to an upset customer!

• Lack of Purchasing Power: Small clubs that lack the volumes in purchasing shouldn't run Jit. clubs that adopt Jit must be able to be the whole one priority in their supplier's eyes. You can't be screaming for goods and have nobody listen to you.

• Too Many separate goods Lines: clubs that have small volumes spread over a large goods portfolio, don't have the essential individual volumes to make Jit work. The best example of this is an automotive firm like Honda. They have a few car models, but very large volume over those models.

• Infrequent & Cyclical Demand: Jit requires constant and linear demand for products. Infrequent demand means infrequent volume and a lack of purchasing power.

• High Freight Costs at Times: If inventory is not available, or if that shipment is wrong or defective, then the firm must rush parts into their warehouse, receive it, and then ship out again, often at huge costs.

The Conditions for Min/Max

The above points pretty much sum up the mental behind why a firm might want to run Min/Max. Contrary to Jit, Min/Max is based on a minimum and maximum whole of inventory, hence the term Min/Max. While not as dynamic as Jit, there are fewer problems with defective parts or materials, as clubs contend a safety stock. In addition, clubs that run Min/Max often don't have those high freight costs for urgent shipments when there's a stock out or late shipment. Min/Max is exquisite for clubs with infrequent and cyclical demand, as they know they'll get an order, but aren't exactly sure when. Having the inventory ready at a moments notice, allows them to assistance customers immediately. In addition, clubs can often lower their per unit freight costs and purchase prices, by buying and shipping in bulk. However, like Jit, there are some issues with Min/Max and they are summarized below.

• High inventory keeping Costs: Because inventory must be available at a moment's notice, the month to month keeping costs are higher.

• Higher Incidence of Damage: inventory that remains for extended periods of time runs the risk of being damaged.

• Higher Incidence of Outdated Inventory: Much like the point above, keeping inventory for longer periods means that inventory could swiftly become obsolete and outdated.

In the end, choosing which inventory system to run should unquestionably be based on the company's firm model, its customer's ordering patterns, and the shop it services. Match inventory arrival to customer demand. There are benefits and drawbacks to both approaches, but never assume that what works for other company, should work for yours.

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