The X group is a well-established manufacturing group that operates a number of compa- nies using...

 

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The X group is a well-established manufacturing group that operates a number of compa- nies using similar production and inventory holding policies. All of the companies are in the same country though there are considerable distances between them. The group has traditionally operated a constant production system, whereby the same vol- ume of output is produced each week, even though the demand for the group's products is subject to seasonal fluctuations. As a result there is always finished goods inventory in the group's warehouses waiting for customer orders. This inventory will include a safety inventory equal to two weeks' production. Raw material inventories are ordered from suppliers using the Economic Order Quantity (EOQ) model in conjunction with a computerised inventory control system which identifies the need to place an order when the re-order level is reached. The pur- chasing department is centralised for the group. On receiving a notification from the computerised inventory control system that an order is to be placed, a series of quota- tion enquiries are issued to prospective suppliers so that the best price and delivery terms are obtained for each order. This practice has resulted in there being a large num- ber of suppliers to the X group. Each supplier delivers directly to the company that requires the material. The Managing Director of the X group has recently returned from a conference on World Class Manufacturing and was particularly interested in the possible use of Just In Time (JIT) within the X group. Requirement Write a report, addressed to the Managing Director of the X group, that explains how the adoption of JIT might affect its profitability. (10 marks) The X group is a well-established manufacturing group that operates a number of compa- nies using similar production and inventory holding policies. All of the companies are in the same country though there are considerable distances between them. The group has traditionally operated a constant production system, whereby the same vol- ume of output is produced each week, even though the demand for the group's products is subject to seasonal fluctuations. As a result there is always finished goods inventory in the group's warehouses waiting for customer orders. This inventory will include a safety inventory equal to two weeks' production. Raw material inventories are ordered from suppliers using the Economic Order Quantity (EOQ) model in conjunction with a computerised inventory control system which identifies the need to place an order when the re-order level is reached. The pur- chasing department is centralised for the group. On receiving a notification from the computerised inventory control system that an order is to be placed, a series of quota- tion enquiries are issued to prospective suppliers so that the best price and delivery terms are obtained for each order. This practice has resulted in there being a large num- ber of suppliers to the X group. Each supplier delivers directly to the company that requires the material. The Managing Director of the X group has recently returned from a conference on World Class Manufacturing and was particularly interested in the possible use of Just In Time (JIT) within the X group. Requirement Write a report, addressed to the Managing Director of the X group, that explains how the adoption of JIT might affect its profitability. (10 marks)

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The justintime JIT inventory system is a management strategy that aligns rawmaterial orders from suppliers directly with production schedules Companies employ this inventory strategy to increase effic... View the full answer