The Following Reasons Have Been Offered for Holding Inventories

question 66

Essay

The following reasons have been offered for holding inventories:
1. To balance ordering or setup costs and carrying costs

2. To satisfy customer demand (e.g., meet delivery dates)

3. To avoid shutting down manufacturing facilities because of
(a) machine failure
(b) defective parts
(c) unavailable parts

4. Unreliable production processes

5. To take advantage of discounts

6. To hedge against future price increases
Required:
a. Explain how the JIT approach responds to each of these reasons and, consequently, argues for insignificant levels of inventories.

b. The theory of constraints (TOC) criticizes the JIT approach to inventory management, arguing that it fails to protect throughput. Explain what this means and describe how TOC addresses this issue.

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Definitions:

Illusions

Perceptual experiences that misrepresent physical stimuli, leading to false perceptions or interpretations.

Perceptual Strategies

Approaches and methods used by the brain to interpret and understand sensory information.

Frequencies

In psychology, often refers to the rate at which a behavior occurs or the rate of occurrence of a particular mental process.

Harmony

The combination of simultaneously sounded musical notes to produce chords and chord progressions having a pleasing effect.