For the grocery delivery business addressed in Question 1, the grocery chains th
ID: 463169 • Letter: F
Question
For the grocery delivery business addressed in Question 1, the grocery chains that you are planning to partner with use differing inventory control models. Company A utilizes the Just-in-Time (JIT) inventory control model and Company B uses an Economic Order Quantity model. In reviewing your business plan, the bank loan officer has noticed this. As the loan officer is not overly familiar with either model, a request has been made of you to provide a description of each model and an explanation of why partnering with these companies would or would not create a conflict within your operations. Provide a detailed analysis of the situation in your business model.Explanation / Answer
Just in Time inventory model is based on pull system of inventory control. IT increases efficiency and reduces waste by reducing the quantity of goods as they are needed in the production process, thereby reducing the inventory costs in terms of working capital required to purchase inventory, as well inventory holding costs, including warehousing costs.
Economic Order Quantity model is driven by Economic Order Quantity as order lot size and it seeks to minimise the total inventory cost per year. Ecnomic Order Quantity is the quantity at which total inventory cost is minimum. Total inventory cost is the sum total of ordering cost and cycle stock holding cost. ordering cost is arrived at by multiplying the total number of orders per year by the transaction cost per order. cycle stock holding cost is calculated by multipplying the average cycle inventory by the annual holding cost per unit. Average cycle unit is EOQ/2.
Partnering with these organisations would not create a conflict within the organisation, because both the models are focused at minimising wastage and cost.