A logistics-based inventory model for JIT procurement

Although some recent articles have extended the traditional economic order quantity models to JIT purchasing, their value is limited by the simplistic nature of the underlying assumptions. Implementation of JIT procurement is a lengthy and complex process and it is important to recognize the interrelationships between the investments in the different subsystems of the procurement system to suit JIT and the resultant cost and lead time structures. It is also important to consider the variability in demand and lead time. The paper presents an inventory-theoretical model that takes these considerations into account and illustrates its application with a numerical example. This model facilitates the choice of an optimal combination of the investment and the shipment lot size to minimize the total annual cost in each period as a firm progressively adopts JIT procurement.