4.8: Inventory Control Techniques

Question 1

Explain the inventory control technique “just-in-time”

Answer 1

( how )
- this system involves the idea that products should be produced just in time for delivery, and raw materials should be ordered and delivered just in time to be used for production
- under this system, inventory never sits around and a minimum amount of money is tied up in inventory.
( why )
- can improve production efficiency and competitiveness by preventing over-production and by minimising waiting times and transport costs
- may be difficult and expensive to introduce and opens the business to risks such as having no stock to fall back on (not needed for why)

Question 2

Explain the inventory control technique “just-in-case”

Answer 2

( how )
- just in case (JIC) is an inventory strategy where companies keep large inventories on hand
- aims to minimize the probability that a product will sell out of stock
- a company that uses this strategy typically has difficulty predicting consumer demand or experiences large surges in demand at unpredictable times
( why )
- with this strategy, the companies have enough production material on hand to meet unexpected spikes in demand and have a reduction in the number of sales lost due to sold-out inventory
- higher storage costs and higher inventoryholding costs are some main disadvantages of this strategy (not needed for why)