Inventory Cost Minimization

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Minimizing the Inventory Cost in the Production Management: Just in Time (JIT) Manufacturing System is a Mile Stone Shirajul Islam
M. Phil Researcher, Jahangirnagar University, Savar, Dhaka

Abstract

This article explains how a firm manages her inventory to gain minimum production cost and earn business success by using JIT (Just in Time) Manufacturing System. It provides a mathematical framework to understand the performance of a farm, and argues that inventory cost minimization method is an approach that helps a farm to be competitive and successful. JIT inventory management system has been elaborated by reducing set-up times and lead times so that small lots may be ordered as and when required. The holding cost for space rent reduces significantly as the orders are put to the suppliers just in time, which is described in this paper.

Keywords and Phrases: JIT (Just in Time), Inventory System, Kanban, Transaction Inventories, Speculative Inventory and Precautionary Inventory, EOQ (Economic Order Quantity), Holding Cost, Set up Cost, Buffer Stock. ________________________________________________________________________

Introduction
Minimizing the production cost of a company is a vital factor over the others to increase the profit in this competitive world. It is very important for a company to manage its production process and a supply chain to reduce this cost, and one of the most important aspects of inventory management is to have the items in stock at the moment those are needed, which helps the managerial key personnel to minimize the inventory cost. To minimize the inventory cost, Project management needs to plan carefully so as to earn maximum profit by using minimum cost and time. One of the objectives of the company is to manage the entire supply chain to reduce costs, thereby to earn business success.

This article explores and explains how a firm manages her inventory to gain minimum production cost and earn business success by using JIT (Just in Time) Manufacturing System. It provides a mathematical framework to understand the performance of a farm, and argues that inventory cost minimization method is an approach that helps a farm to be competitive and successful. In economics, cost minimization is the process by which a farm determines the price and output level that returns the greatest profit.

JIT inventory management is an approach which works to eliminate inventories rather than optimize them. The inventory of raw materials and work-in-process are quickly shifted in a single day, so that, the space is not occupied unnecessarily for a longer period. This system is accomplished by reducing set-up times and lead times so that small lots may be ordered. Suppliers may have to make several deliveries a day or the materials are moved close to the user’s plants. JIT system is widely used to the automobile companies.

Inventory
Inventory constitutes one of the most important elements of any system dealing with the supply, manufacture and distribution of goods and services. Inventory is an idle resource which is useable and has value. The idle resource may be men, money, materials, and plant acquisition. The manpower, capital and plant acquisition problem are essentially inventory control problems. It is commonly used to indicate materials- raw, in process, finished, packaging, spares and others- stocked in order to meet an expected demand or distribution in the future.

The finished product after packaging are first stored and sent to the market as the need arises or orders are received. Also the raw materials needed for the finished product cannot be directly fed to the production department from the market. These have to be stored first after procurement. These things put together give an idea of storing these items. This process of storing is called inventory.

Why Inventories are Essential for Production
There are various reasons why organizations should maintain inventories of...
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