Management Notes

Reference Notes for Management

Which one of the following statements is true regarding jit inventory?

Which one of the following statements is true regarding jit inventory?


A. It exists just in case something goes wrong.
B. It is the minimum inventory necessary to keep a perfect system running.
C. It hides variability.
D. It is minimized with large lot production.
E. It increases if setup costs decrease.

The Correct Answer Is:

B. It is the minimum inventory necessary to keep a perfect system running.

Correct Answer Explanation: B. It is the minimum inventory necessary to keep a perfect system running.

Just-in-Time (JIT) inventory is a strategy employed by businesses to optimize their inventory management. The correct statement, Option B, asserts that JIT inventory represents the minimum inventory needed to maintain an ideally functioning system.

This is accurate because JIT principles focus on reducing excess inventory to only what’s essential for smooth operations, minimizing waste, and enhancing efficiency.

JIT inventory aims for a lean and efficient system, which directly aligns with Option B. By keeping minimal inventory, businesses can respond more flexibly to changes in demand and avoid tying up capital in excessive stock.

Let’s delve into why the other options are not accurate explanations:

A. “It exists just in case something goes wrong.”

JIT inventory isn’t primarily a safety net for potential issues. Traditional inventory management often relies on maintaining surplus stock as a buffer against uncertainties, such as production delays or fluctuations in demand.

However, JIT takes a different approach by emphasizing a lean inventory system that’s finely tuned to meet demand without excessive safety stocks. Instead of existing solely for contingencies, JIT aims to streamline operations by reducing inventory to its essential minimum, focusing on efficient production and supply chain management.

C. “It hides variability.”

JIT does not aim to conceal or hide variability within the production or supply chain processes. In fact, it actively addresses and minimizes variability. Variability, whether in production times, supplier deliveries, or customer demand, can lead to inefficiencies, increased lead times, and waste.

JIT, through practices like continuous improvement and standardization, aims to identify and reduce variability to create a more predictable and efficient system.

Rather than hiding variability, JIT seeks to mitigate its negative impacts by addressing root causes and implementing measures for better control and predictability.

D. “It is minimized with large lot production.”

This statement misinterprets the fundamental principle of JIT. Large lot production typically results in higher inventory levels due to producing more than what is immediately required. JIT, on the contrary, emphasizes smaller, more frequent production runs aligned with actual demand.

By reducing batch sizes, JIT aims to minimize inventory and associated costs while enabling greater flexibility and responsiveness to changes in demand. Large lot production contradicts the JIT philosophy by fostering excess inventory and inhibiting the system’s agility and efficiency.

E. “It increases if setup costs decrease.”

While decreased setup costs may make it more feasible to adjust inventory levels, JIT’s core principle remains the minimization of inventory. Lower setup costs might incentivize more frequent changeovers or adjustments in production, enabling businesses to efficiently produce smaller batches tailored to actual demand.

However, JIT’s ultimate goal is to minimize inventory to the lowest possible level while maintaining operational efficiency. Decreasing setup costs might influence inventory decisions, but the primary focus remains on lean operations and waste reduction rather than increasing inventory levels.

Understanding JIT inventory management involves recognizing its focus on lean practices, waste reduction, efficient production, and responsiveness to customer demand, all while maintaining a minimal yet sufficient inventory level essential for a smoothly running system.

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