Economic manufacturing quantity in a just-in-time delivery system

Abstract

A just-in-time (JIT) buyer demands frequent deliveries of small lots of certain products. However, there is a perception among the suppliers that participation in a JIT delivery system is economically disadvantageous for them. To test this conjecture, a generalized inventory model is developed for a supplier who has to meet a deterministic demand at fixed intervals. The generalized total cost model developed here is found to be a piecewise convex function. A simple algorithm is developed to compute the optimal batch size. When production uptime and cycle time are each equal to an integer multiple of the shipment interval, a perfect matching of shipment size occurs, and for such a situation, the generalized model specializes to more traditional inventory models. The solution approach for such models becomes much easier. It is found that, under certain conditions, the total cost decreases linearly with reduced shipment size and the suppliers benefit from this. Economic impact of ordering and setup costs reduction are also investigated.