Both the Economic Oder Quantity (EOQ) technique and Just-In-Time (JIT) approach to inventory management are significant in monitoring inventory costs. The application of the EOQ technique is appropriate for scheduling the purchase of materials. EOQ accounts for holding costs (Kumar, 2016). However, they may not be constant if fluctuations occur in the materials used between subsequent order cycles. Consistent inventory usage between order cycles reduces the inventory cost. The method is appropriate for determining the optimum holding and ordering costs.
On the other hand, JIT applies the theory of stockless store. In this case, any inventory stored is uneconomical as it ties capital (García-Alcaraz et al., 2015). The approach is sophisticated as it is based on the management of lead time and demand. It utilizes frequent and timely deliveries to suit demand. In the production department, required materials are supplied when needed in the exact quantities to ensure a seamless production cycle.
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A company can switch from EOQ to JIT if it has collaborative or partnership relationships with suppliers; its inventory use is constant and has accurate production forecasts (García-Alcaraz et al., 2015). The JIT technique is appropriate if the company has constant production and demand. Therefore, the approach curbs delayed deliveries that can result in disturbance of the production process and failure to meet customer demand. Hence, the company applying it should effectively manage lead times.
Companies across the globe effectively use the EOQ, and JIT approaches in their company operations. For instance, Quidsi, the official company for Soap.com, Diapers.com, and BeaautyBar.com, applied the EOQ technique successfully to achieve high performance (Periu, 2019). Quidsi opted for the method to reduce the holding of excess stock that impacts negatively on the working capital. It resulted in its acquisition by online giant Amazon. On the contrary, Dell has applied JIT leading to the seamless production process (García-Alcaraz et al., 2015). They achieve this since they have dependable suppliers who are willing to hold inventory and supply in short lead times.
Some companies utilize both inventory management techniques under different circumstances. A company can use both methods for perishable goods like bread, fruits, and milk. JIT helps to ensure timely deliveries, whereas EOQ ensures maintaining optimum inventory levels. Consequently, the application of the two techniques eliminates shortages, as well as reduces obsolescence.
References
García-Alcaraz, J. L., & Maldonado-Macías, A. A. (2015). Concepts of Just-in-Time (JIT). Management and Industrial Engineering, 3–20. Doi: 10.1007/978-3-319-25919-2_1.
Kumar, R. (2016). Economic Order Quantity (EOQ) Model. Global Journal of finance and economic management , 5 (1), 1-5.
Periu, M. (2019). Economic order quantity: The $545 million formula. American Express. Retrieved from https://www.americanexpress.com/en-us/business/trends-and-insights/articles/economic-order-quantity-the-545-million-formula-1/
