Many companies build up their inventory levels to:
1. Accommodate for uncertainties in demand;
2. Take advantage of economies of scale;
3. Accommodate for unreliable suppliers;
4. Accommodate for quality issues;
5. Accommodate for production and scheduling errors.
Yet, JIT and Lean Manufacturing philosophies state that inventory is considered waste and should be eliminated as much as possible.
1. Please make a post which makes the case for building up inventory levels.
2. Please make a second post which makes the case for using JIT & Lean Manufacturing to eliminate as much inventory as possible.
3. Please make a third post in which you choose a company (or industry) and discuss which of these inventory methodologies you would follow and why.
1. High inventory levels or high level of safety stock is preferred for those products that face a seasonal demand, ie, strong uptick in demand during peak seasons. For such products, it is important to create high inventory levels to cater to the increased demand for such peak season. This helps the organization to avoid shortage of goods in other ...
The solution discusses situations wherein high and low inventory levels are beneficial for an organization. The solution makes a case for using JIT and Lean Manufacturing to eliminate as much inventory as possible.
A company produces to a seasonal demand, with the forecast for the next 12 months as given below.
The present labor force can produce 500 units per month. Each employee added can produce an additional 20 units per month and is paid $1000 per month. The cost of materials is $30 per unit. Overtime can be used at the usual premium of time and a half for labor up to a maximum of 10 percent per month. Inventory-carrying cost is $50 per unit per year. Changes in production level cost $100 per unit due to hiring, line changeover costs, and so forth. Assume 200 units of initial inventory. Extra capacity may be obtained by subcontracting at an additional cost of $15 per unit over and above the company's producing them itself on regular time.
Provide a detailed cost breakdown for using a level vs. a chase strategy to meet the increased demand. Which strategy do you recommend? How much savings would result from the plan you recommend?