The Following Reasons Have Been Offered for Holding Inventories

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.