17-03-2014, 04:01 PM
Just-in-time purchasing: an integrated inventory model involving deterministic variable lead time and quality improvement investment
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ABSTRACT
Nowadays supply chain management is a popular practice in manufacturing
systems, and just-in-time (JIT) production plays a crucial role in supply chain
environments. Companies are using JIT production to gain and maintain a com-
petitive advantage. The characteristics of JIT systems are consistent high quality,
small lot sizes, frequent delivery, short lead time, and close supplier ties. This
paper presents an integrated inventory model to minimize the sum of the order-
ing/setup cost, holding cost, quality improvement investment and crashing cost
by simultaneously optimizing the order quantity, lead time, process quality and
number of deliveries while the probability distribution of the lead time demand is
normal. This integrated inventory model is useful particularly for JIT inventory
systems where the vendor and the purchaser form a strategic alliance for profit
sharing.
Introduction
The JIT system plays an important role in present supply chain management.
One of the major tasks of maintaining the competitive advantages of JIT production
is to compress the lead time needed to perform activities associated with delivering
high-quality products to customers. In the dynamic, competitive environment, suc-
cessful companies have devoted considerable attention to reducing inventory cost
and lead time and improving quality simultaneously.
In recent years, companies have found that there are substantial benefits from
establishing a long-term sole-supplier relationship with a supplier (Martinich 1997).
In the JIT environment, a close cooperation exists between supplier and purchaser to
solve problems together, and thus to maintain stable, long-term relationships. Since
both purchaser and supplier may benefit from the negotiation process, the two sides
must then negotiate to determine how to divide the savings (Thomas and Griffin
1996). The advantages of the integrated inventory model include improved quality,
lowered inventory cost, technology sharing and reduction of lead time.
Conclusions
Many researchers focus on the benefit from quality improvement or lead-time
reduction in inventory models but only from a single party’s viewpoint. However,
consideration of the dyadic relationship between the vendor and purchaser is essen-
tial for implementing a just-in-time purchasing model. This paper investigates a JIT
purchasing model where a single vendor supplies a single purchaser with a product
by presenting an integrated inventory model that accounts for replenishment lead-
time reduction and quality improvement investment considerations. The model is to
minimize the sum of the ordering/setup cost, holding cost, quality improvement and
crashing cost by simultaneously optimizing the order quantity, the lead time, the
process quality and the number of deliveries with normally distributed lead time
demand and is shown to provide a lower total cost, higher quality, smaller lot size
and shorter lead time. JIT purchasing has an enormous impact on a company’s
profitability, especially in a competitive environment characterized by small profit
margins. Furthermore, the application of JIT technologies such as small lot size, lead
time reduction and quality improvement play a significant role in achieving JIT
purchasing. The proposed model serves as a pioneering work on investigating the
effects of lead time reduction and quality improvement on the integrated inventory
model.