CHAPTER 20
Inventory Management: Economic Order Quantity, JIT, and the
Theory of Constraints
COLLABORATIVE LEARNING EXERCISE SOLUTION
a. JIT does not accept setup (or ordering) costs as a given but attempts to drive these costs to
zero through reducing the time it takes to set up and by developing long-term contracts with
suppliers. Carrying costs are minimized by reducing inventories to insignificant levels.
b. JIT reduces lead times, which increases a firm’s ability to meet requested delivery dates.
This is accomplished by (1) reduction of setup times, (2) improved quality, and (3) cellular
manufacturing.
c. The problems that usually cause shutdowns are (1) machine failure, (2) defective material or
subassembly, and (3) unavailability of a material or subassembly (either not delivered or de-
livered late). JIT attempts to solve each of the three problems by emphasizing total preven-