Just-in-Time purchasing vs. Economic Order Quantity with a price discount: an analytical comparison of inventory costs

The inventory costs of purchasing under economic order quantity (EOQ) model with a quantity discount is determined and compared to the costs under just-in-time (JIT). It is shown that at low levels of demand, JIT is the preferred method, whereas EOQ has the cost advantage for an item with a high demand. The model also predicts that the higher the value of the item, the carrying cost, or the ordering cost associated with the EOQ model, and the smaller the quantity discount rate, the wider will be the range of demand for which JIT remains preferable.