Economic Order Quantity vs. Just-in-time Inventory Models
Tameka S. Levy
April 20, 2011
There are several models that have been developed to deal with the trade-off between ordering and carrying costs of inventory. The two that will be discussed is the Economic Order Quantity (EOQ) model and the Just-in-time (JIT) model. First, the history and definition of the theories will be discussed. Secondly, there will be a comparison of these two models presented. Thirdly, organizations that employ the EOQ and JIT model will be discussed and an explanation will be given on how each organization benefited in their operations from using these particular models. The EOQ model is a mathematical model that minimizes the total of short-term ordering costs plus short-term carrying cost for the period. In addition, it specifies the size of order to place every time inventory is ordered (Ainsworth & Deines, 2011). The EOQ model was developed by F. W. Harris in 1913, but R. H. Wilson, a consultant who applied it broadly, is given credit for his early thorough analysis of it (Hax, 1984). The JIT inventory model is a long-run model based on the principle that inventory should arrive just as needed for production in the quantities needed (Ainsworth & Deines, 2011). JIT is a Japanese management philosophy which has been applied in practice since the early 1970s in many Japanese manufacturing organizations. It was first developed and perfected within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting consumer demands with minimum delays. Taiichi Ohno is frequently referred to as the father of JIT (Monden, 1993). There are many differences between the EOQ and JIT model. The EOQ model reflects only short-term carrying and order costs. The EOQ model assumes that inventory ordering and inventory usage transpire in uniform cycles throughout the period. However, the JIT is a long-term model based on the principle...
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