Write a 8 pages paper on finance issues of the company.  . . . . . .Holding too little has its problems and costs like the cost of lost profits that would have been made because of lost sales, the problem of loss of customer loyalty and patronage, the cost of making more orders from time to time because of limited inventory on hand.
Just in time (JIT) practice reduces an inventory level which means lower investments in inventories. It also greatly improves the lead time reliability due to shorter delivery- lead time. There are reduced lead times and set-up time increases scheduling flexibility.
Many companies had reported improved quality levels in using JIT. It is also believed that extensive valued analysis reduces the cost of purchased materials. There will be lower investments in factory space for inventories and products. There will be also less obsolescence risk in inventories and less paperwork and a reduction in scrap and rework.
On the other hand, the arguments against JIT include the following: JIT presupposes a disciplined act and as such, it demands a long term commitment from management to do it. Its management is changing or if there is no stability, it possibly the company may lose what would have earned under the ordinary way of maintaining inventories. There is also a great possibility that there would be a large initial cost that would possibly not compensated by short term returns. JIT presupposed anticipated the demand and supply of its products and if management commits a mistake along the way, the effect could be disastrous. JIT also making a stable agreement with a supplier for the timely delivery of inputs for production and this may also create problems with supplies of terms large of money to implement the plan for JIT. Related with the large cost is also a risk that will have to be considered by the companies in wanting to implement JIT1.
The formula above uses D, which refers to the annual demand for the product, O which stands for ordering cost per unit and C, or the carrying cost per unit. In so computing minimum inventory cost there was a need to determine the balance level of order that will reconcile the opposing behavior of ordering cost and carrying the cost.