An analytical comparison of inventory costs of JIT and EOQ purchasing with defective products

Abstract

In this paper, we propose an alternative model of Fazel et al. [7] to represent a more realistic inventory management environment. The modified model accounts for certain defective products in the economic order quantity (EOQ) purchasing model and just-in-time (JIT) purchasing system. By comparing the total annual cost of the EOQ purchasing model and the JIT purchasing system, we discuss the superiority changes between the two systems under different demand levels, penalty costs and defective product percentages. Moreover, we show that both product quality and penalty cost have a great impact on the effect of the JIT purchasing system. If we want to adopt a JIT purchasing system the perfect quality of products and penalty cost of the defective products should be very important factors.

Keywords:

• JIT
• EOQ
• purchasing
• defective product
• price discount