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Economic Order Quantity Literature Review

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❶Suppliers are encouraged to extend JIT approach to their own suppliers.

economic order quantity literature review

Spare parts inventory control: The proposed model involves After this, literature review is submitted. A Tight Approximation for an EOQ Model with — Lehigh…We examine a model for setting order quantities in a continuous- review inventory This paper makes the following contributions to the literature on inventory.

Almost a century after of its discovery, the EOQ model is now present in either books or papers related to inventory theory. Introduction and literature review. Since Harris first published the basic EOQ model, many. Chapter 19 Inventory Theorysituations where the inventory level is under continuous review. The EOQ model with planned shortages addresses this kind of situation by replac-. The discussion First, Section 2 presents a review of the literature.

Cost Inventory Control Management Sales Ordering …11 Oct The proposed inventory model is the basic economic order quantity model with lead times.

Literature Review Concluding Remark. Inventory; EOQ ; environmental awareness; carbon emission;. What is the efficacy of economic order quantity in a small…13 Nov One approach used increasingly by larger businesses is economic order quantity EOQ. Reviews are not available for this item. The fundamental difference between JIT method and other traditional methods is the treatment of the costs. According to Hirsch et al. After these amounts are transferred into a work-in process account, they will be put into operation as raw materials.

The value of material is diverted to finished product inventory account because the product has been completed. In JIT purchasing, suppliers use the replacement principle of Kanban by using small, standard-size containers and make several shipments daily to each customer. JIT not only reduces in-process inventories by using Kanban, but also raw materials inventories are reduced by applying the same principles to suppliers as well.

According to Frazier and Gaither Supplier development and supplier relations undergo fundamental changes. The nature of the relationships between customers and suppliers shifts from being adversarial to being cooperative. The Japanese call these relationships subcontractor networks and refer to suppliers as co-producers.

Purchasing departments develop long-term relationships with suppliers. The result is long-term supply contracts with a few suppliers rather than short-term supply contracts with many suppliers. Although price is very important, delivery schedules, product quality, and mutual trust and cooperation become the primary basis of supplier selection. Suppliers are encouraged to extend JIT approach to their own suppliers.

This causes lead times to be shorter and more reliable. Because suppliers are encouraged to produce and supply parts at a steady rate that matches the use rate of the buying firm, company-owned hauling equipment tends to be preferred. Parts are delivered in small, standard-size containers with a minimum of paperwork and in exact quantities. Delivered material is of near-perfect quality.

Because suppliers have a long-term relationship with the buying firms and because parts are delivered in small lot sizes, the quality of purchased materials tends to be higher. In the practice of business arena, although EOQ model enable to generate many good results, many limitations of EOQ model is combined with its own assumptions. In practice, demand is assumed to be constant, but in many cases demand is shifty. The unit cost is assumed constant, in practice, however, normally if the purchase of large quantities, it will gain quantities discounts.

The material in the lot is assumed to arrive all at once, but in some cases material will be placed in inventory continuously as it is produced. This case is also treated in the supplement. A single product is assumed, however, sometimes several projects were purchased through a single provider. Meanwhile they are being shipped at one time. Suppose the setup cost is static, as a matter of fact, it is always decreased. These assumptions have been pointed out to illustrate the limitation of the basic EOQ model, nevertheless it is useful approximation in practice.

In addition, the total-cost curve is rather flat in the region of the minimum. Therefore the EOQ can be adjusted somewhat to conform to reality without greatly affecting the costs. The EOQ formula can also offer insight into economic behavior of inventories.

For example, traditional turnover arguments suggest that inventory should increase directly with sales if a constant turnover ratio is desired. Since turnover is the ratio of sales to inventory, a doubling of sales will allow a doubling of inventory if the turnover rate is held constant. But the EOQ formula suggests that inventory should increase only with the square root of sales. This indicates that it is net economical to maintain a constant turnover ratio as sales increase; a higher turnover is indeed justified.

It is important for financial manager that fully understand limitations and assumptions of the EOQ model will offer a strong base of making stock management decision. Obviously, through the above discussion, some assumptions of EOQ model are impractical. In order to make this model more useful, it is necessary to extension for EOQ model. Besley and Brigham , pp. The amount of safety stock a company holds generally increase with a the uncertainty of demand forecasts, b the costs in term of lost sales and lost goodwill that result from stockouts, and c the chances that delay will occur in receiving shipments.

The amounts of safety stock decreases as the cost of carrying this additional inventory increase. Moreover, a company should consider when determining appropriate inventory level is whether its supplier provides discounts to purchase large quantities. More appropriate approach should divide the year into the seasons like the spring, the summer, the fall, and the winter which sales are relatively constant; then the EOQ model can be applied separately to each periods. In practice, we have already found that JIT system have its potential benefits and its problems.

It is important to use that fully comprehension the merits and the problems of JIT system. Meredith and Shafer , p. There are many approaches to save cost. Such as inventory reduction, reduced scrap, fewer defect, less space, fewer changes due to both customers and engineering, decreased labor hours, less rework, reduced rework, and other such effects.

Through high-quality product and satisfactory service to customers, revenue will be increased. The rapid research and development of new products and service will bring more revenues. Investment is saved through three primary effects. First, less space is needed for the same capacity. Second, inventory is reduced to the point that turns run about 50 to a year. Third, the volume of work produced in the same facility is significantly increased, frequently by as much as percent.

They prefer the teamwork it demands, and they like the fact the fewer problems arise. They are also better trained for the flexibility and skills needed with JIT, and they enjoy the growth they experience in their jobs.

One of the unexpected benefits is the greater visibility to problems that JIT allows, if management is willing to capitalize on the chance to fix these problems. In trying to speed up a process, all types of difficulties are uncovered and most of them are various from of waste so not only is response time but also is usually zero.

It is important that JIT system has some problems and limitations. According to Meredith and Shafer , p. First of all, JIT system is do for repetitive production case, including relatively standard products.

JIT system is not long-term operations, because it is based on the identical mixed-model plans to operation in every day. Clearly, when setups need to spend a long time, JIT will not able to run continuously. JIT system often has setups, it also has frequent shipments and receipts. Therefore the company must be prepared for this too. JIT need principle as well. Production will cease, once products are not arrive on schedule, or flaws happen.

Moreover, we have no other means or time to make up for mistakes. Production system must be used correctly, workers must fulfill their work seriously, otherwise run of JIT system will fail.

Principle is usually linked with supply chain. The biggest problem to successful operation of JIT system is unrealistic deliveries from suppliers. When an important supplier their supply, JIT is very danger if there is no backup supplier.

In addition, equally serious problem is when a comprehensive delivery service goes on strike, like UPS and FEDEX strike that idled thousands of business and caused a major disruption in the economy. Although other delivery service can sometimes fill in, they often cannot bring sufficient capacity to the problem to keep JIT operating without disruption. On the other hand, JIT is based on cooperation and trust among workers, managers, suppliers, customers, and so on.

The current environment must be trust and competition is not exist, or else JIT will not run successfully. Trust and cooperation must also be extended to the external such as suppliers and customers. E-commerce has already put up a advantage to JIT purchasing. There are some merits being showed: Reduce waste of time to deal with paper work and reduce the procurement lead time; labor costs are also reduced.

E-commerce can drive the use of Kanban between manufacturer and suppliers. Under method of Internet-based system, a manufacturer can electronically send Kanban to suppliers. E-Kanban and paper Kanban have identical functions, however they can provided to suppliers rapidly. The major benefits for McDonald are better food at a lower cost. McDonald Company has found something that allows them to improve quality and lower costs. The less obvious benefit is the higher quality customer service that arises from the JIT burger assembly.

When McDonald waits for you to order the burger, they do a few things to improve customer service. This higher quality customer service is subject to McDonald ability to produce faster. Instead of having a shelf life of months or weeks, the burger needs to be sold within 15 minutes or so. High holding costs is the nature of the fast food industry. JIT system allowed them to exploit the savings that were realized by holding less inventory.

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The Economic Order Quantity (EOQ) model is a pure economic model in classical.. however, a literature review conducted reveals that there are no studies A Proposed Approach to Extend the Economic Order Quantity quantity (EOQ) model using discrete event simulation.

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