Question

Loftis Manufacturing, Inc., has recently installed a just-in-time (JIT) inventory system. Describe the effect this is likely to have on the company’s carrying costs, shortage costs, and operating cycle.

Answer 1

Just in time is a inventory management system in which inventory is managed on instant basis and it is is provided as and when it is required and it does not focuses on having excess inventory capacity.

Just in time will reduce the companies carrying cost because the company will not have to store the products and the carrying cost will reduce because there would be instant requirement and instant delivery.

The shortage cost will be increased because the inventory is not stored in excess so there may be shortage at times and it can lead to a higher shortage cost through just in time inventory management.

The operating cycle will be becoming lesser in just in time inventory management method because of instant requirement and instant delivery and it is focusing on no extra wastage and no extra holding capacity.