A just-in-time inventory system helps a producer reduce costs by
Multiple Choice
limiting the amount of parts on hand for later use.
accessing the lowest-priced parts at all times.
limiting the amount of emissions into the environment.
expanding the number of suppliers available to a producer.
The correct answer and explanation is :
The correct answer is: limiting the amount of parts on hand for later use.
Explanation:
A Just-in-Time (JIT) inventory system is a management strategy that aims to reduce waste and increase efficiency by receiving goods only as they are needed in the production process. In other words, JIT reduces the need to store large amounts of inventory, which can incur additional costs like storage, insurance, and spoilage. By minimizing the amount of inventory held at any given time, a producer can reduce costs related to overproduction, excess stock, and warehousing.
The key benefits of a JIT inventory system include:
- Reduced Inventory Costs: By keeping inventory levels low, companies avoid the costs associated with storing, managing, and insuring large amounts of inventory. This also reduces the risk of inventory becoming obsolete or perishable, which is particularly important in industries where products have a limited shelf life or where technological advancements can quickly render items outdated.
- Increased Cash Flow: With less money tied up in inventory, businesses can allocate resources more efficiently, improving overall cash flow and allowing for investments in other areas such as research and development, marketing, or infrastructure.
- Improved Efficiency: JIT focuses on streamlining the production process, which often involves fostering strong relationships with suppliers. By relying on frequent and timely deliveries, companies can maintain efficient production schedules without the need for a large inventory buffer.
- Waste Reduction: JIT encourages the production of goods in smaller, more frequent batches, which leads to less waste in terms of unsold products or outdated parts. This is particularly relevant for companies trying to meet customer demand while minimizing surplus production.
By limiting the amount of parts on hand for later use, companies essentially avoid the costs associated with unnecessary inventory, making JIT a valuable tool for reducing operational costs.