The Wholesale Division of Navigator Enterprises Is Considering the Installation

Essay

The wholesale division of Navigator Enterprises is considering the installation of a just-in-time purchasing system.The company's accountant has provided the following figures if the system is adopted:
· Sales lost because of out-of-stock situations will total 5,500 units,with each unit producing an average profit for the firm of $23.
· The overall inventory will drop by $700,000.Navigator can invest these funds elsewhere and produce a return of 13%.
· A leased warehouse (monthly rent of $3,000)will no longer be needed.
· Two warehouse employees (total annual salary cost of $43,000)will be transferred elsewhere in the firm.
· Annual property taxes and insurance are expected to fall by $18,900.
· In order to keep valued customers,Navigator will occasionally have to use air freight when an out-of-stock situation arises,resulting in added cost for the company of $2,300.
Required:
A.

The just-in-time system is financially advantageous to the firm,saving $17,100.Note: The cost of the warehouse employees is ignored because regardless of whether the system is adopted,Navigator will incur the cost.
A.Determine whether it is financially advantageous over a 12-month period for Navigator to adopt the just-in-time system.
B.How would Navigator describe the "ideal supplier" if the company adopts the just-in-time system.
B.The "ideal supplier" is one that delivers top quality goods precisely when needeD.Thus,reliability is a key with respect to quality and delivery,as is close proximity to the wholesale division.Most JIT suppliers are willing to sign long-term contracts and accept "batched" payments for deliveries.