Differences Between The Just In Time (JIT) Methodologies And The Economic Order Quantity (EOQ) (Term Paper Sample)

Annual demand = 400000
Annual carrying cost rate = 15% of 48
Product cost = $48/unit
Product ordering cost = $28
Carrying cost per order = 15% of 48 = 7.2
The Economic Order Quantity (EOQ) is thus calculated as:
Or 15% of 48=7.2
Square root (2 * Quantity * Cost per Order / Carrying Cost per Order)
SQRT (2*400,000* 28/7.2)
2*400000 = 80000
80000*28 = 2240000
2240000/7.2 = 311111
SQRT (311111.111) =?
EOQ= 1764 units
The total cost at the EOQ is thus;
F=fixed cost, c = cc per unit,
= (400000/1764)*(28)
= 6349.2
Total cost = 6349.2
How much would the TC increase if the order quantity is 1000?
Annual carrying cost:
EOQ/2
1764/2
= 882
Thus ACC= (882)*(7.2) =6350.4
TC at EOQ is 6349.2 + 6350.4 =12699
Annual ordering cost:
(400000/1000)*(28)
=11200
EOQ/2 = 1000/2
= 500
Therefore at 1000 of order quantity, the Total Cost =
(14800-12699)
=2100.4
Differences between the Just In Time (JIT) methodologies and the Economic Order Quantity (EOQ)
The Economic Order Quantity (EOQ) and Just in Time (JIT) are considered two ways in which businesses can manage inventory. The EOQ involves the establishment of the amount of inventory that needs to be ordered with the sole aim of reducing the overall cost of transporting and purchasing. The Just in Time techniques relies on the making of supplies more accessible on how and when needed immediately to satisfy the efficiency motivation as well as the customer. The EOQ can be assessed to make sure that costs are minimized to the last bit whereas JIT goes further to make them almost zero (Farzaneh, 1997). The JIT increases the level of efficiency and zeros in on waste by a process of taking products/goods only at a time when they are strictly needed in the process of production. This makes sure that inventory costs are reduced considerably. The JIT process and model therefore requires that the manufacture/producer is keen and aware to forecast demand in the most accurate manner.
The EOQ model is a technique that first originated in the United States of America from an American production engineer known as Ford Whiteman Harris. It purposes to keep the amount of material at a level that is optimal at minimal cost. Just in time on the other hand is a management philosophy that originated from the Japanese that is aimed at offering customers with products that are of the required kind and amount and at the required time.
The EOQ ensures a consistent amount of material in its inventory working on a set reorder estimate and need to be refilled so as not to have shortages and extra costs. JIT on the other hand lays focus on satisfying customers’ orders on time as required and doing so with the required quantity and quality using as minimal wastage of resources as possible. These resources include time and material.
Both of these techniques are intended to increase the returns of the company and to minimize the costs involved. Whereas the EOQ depends much on strategies that incorporate finance, accounting and marketing, the Just In Time depends much or is hinged mostly on the work ethics of the employees/workers and their commitment to ensure the overall success of the company. It is appropriate to succinctly summaries the two techniques as quantitative and qualitative. In this sense, The EOQ is more of a quantitative process, whereas the JIT is more of a qualitative process (Fuchiao, Tson, Chin-Fu, 1990). However, both of them involve the qualitative and quantitative aspects in their operations.
The key to use these two models is that there is not one that is the superior to the other at all times. The strategy is to work with each at appropriate times of which the circumstance asks for. The EOQ will work best for the analyzed situations above whereas the JIT will find its place as analyzed. They both enhance efficiency at manufacturing and production and it is best if both are used when needed. The Just in Time processes has been criticized for having more disruptions in the supply chain. This im...