Quantitative Modeling and Information System Support for Just -In -Time Partnership.

Abstract

Just-in-Time (JIT) supply calls for frequent, small deliveries, which arrive on time, with the quantity and quality required. For JIT to be effective there should be a cooperative relationship between the buyer and the supplier. They should work together to enhance their competitive positions in the market place. This study extends the quantitative models published in the literature to provide more realistic models for JIT operations and evaluates the costs and benefits of JIT partnerships to help in the negotiation process between the partners. We provide a new model for the optimization of the joint total relevant cost of the buyer and supplier in the typical JIT scenario where the buyer's order is delivered in multiple shipments and the supplier's production lot size is an integer multiple of the shipment size. The new model provides more flexibility and cost saving for a JIT environment. It determines jointly the optimal values of the three decision variables: the shipment size, the number of shipments of an order, and the number of shipments per production lot size. JIT supply requires flexible resources because of the random changes in customer demand. We provide a new model to quantify the advantages and costs of maintaining flexible resources by the JIT supplier. To avoid the high cost of flexible resources, in several cases in practice either the buyer or the supplier holds safety stock to provide the appropriate customer service level. This is the stage of transition to real JIT supply. Only the case where the buyer is holding safety stock was examined previously, we consider the case where the supplier is responsible for holding safety stock. This study integrates operations management models both with cost accounting information systems using Activity Based Costing (ABC) and with management information systems using Electronic Data Interchange (EDI). To provide accounting data, the study specifies the cost activities, cost drivers and traceable costs of the buyer and supplier. We explore the costs and benefits that are experienced through the exchange of information between the buyer and the supplier in a JIT environment.