Just in Time
Buffer Inventory – Just-in-Time
Buffer inventory is also called safety inventory. Its purpose is to compensate for the unexpected fluctuations in supply and demand. For example, a retail operation can never forecast demand perfectly, even when it has a good idea of the most likely demand level. It will order goods from its suppliers such that there is always a certain amount of most items in stock. This minimum level of inventory is there to cover against the possibility that demand will be greater than expected during the time taken to deliver the goods. This is buffer, or safety inventory. It can also compensate for the uncertainties in the process of the supply of goods into the store, perhaps because of the unreliability of certain suppliers or transport firms.
Disadvantages of Buffer Stock
Disadvantages include the costs for storage and security of the stockpiles which leads to an opportunity cost as the government cant spend money in other sectors. If supply continues to increase without disruption then it will mean the government has to purchase more surplus stock and store which may become more expensive. Conversely their may be an event which causes a decrease in the supply which would mean the government has to use up its stockpile, if this continues and the government runs out of stock then the market price will eventually exceed the maximum price and so render the buffer stock system inept. The price range may be inaccurately set in the first place which would also cause problems. The stocks may be perishable over a long period of time, which means the government can lose money if it has to destroy stock.
The zero inventory philosophy - Conventional and JIT approaches
Just-in-time philosophy gained prominence in the 1970’s through Taiichi Ohno at the Toyota motor company. “The Just-in-Time (JIT) philosophy in the simplest form means getting the right quantity of goods at the right place and at the right time”. (Reid & Sanders, 2007).
Buffer inventory is also called safety inventory. Its purpose is to compensate for the unexpected fluctuations in supply and demand. For example, a retail operation can never forecast demand perfectly, even when it has a good idea of the most likely demand level. It will order goods from its suppliers such that there is always a certain amount of most items in stock. This minimum level of inventory is there to cover against the possibility that demand will be greater than expected during the time taken to deliver the goods. This is buffer, or safety inventory. It can also compensate for the uncertainties in the process of the supply of goods into the store, perhaps because of the unreliability of certain suppliers or transport firms.
Disadvantages of Buffer Stock
Disadvantages include the costs for storage and security of the stockpiles which leads to an opportunity cost as the government cant spend money in other sectors. If supply continues to increase without disruption then it will mean the government has to purchase more surplus stock and store which may become more expensive. Conversely their may be an event which causes a decrease in the supply which would mean the government has to use up its stockpile, if this continues and the government runs out of stock then the market price will eventually exceed the maximum price and so render the buffer stock system inept. The price range may be inaccurately set in the first place which would also cause problems. The stocks may be perishable over a long period of time, which means the government can lose money if it has to destroy stock.
The zero inventory philosophy - Conventional and JIT approaches
Just-in-time philosophy gained prominence in the 1970’s through Taiichi Ohno at the Toyota motor company. “The Just-in-Time (JIT) philosophy in the simplest form means getting the right quantity of goods at the right place and at the right time”. (Reid & Sanders, 2007).