CHAPTER 3: LOGISTICS AND INFORMATION TECHNOLOGY
CHAPTER 3: LOGISTICS AND INFORMATION TECHNOLOGY
内容提要：中国经济管理大学 www.mhjy.net www.eauc.hk
講義:小保羅·R·墨菲《MBA物流學》(3)
PART II
ANSWERS TO END-OF-CHAPTER QUESTIONS
CHAPTER 3: LOGISTICS AND INFORMATION TECHNOLOGY
1. In what ways can information be helpful in logistics and supply-chain management?
There are a number of ways in which information can be helpful in logistics and supply-chain management. These include, but are not limited to, greater knowledge and visibility across the supply chain, which makes it possible to replace inventory with information; greater awareness of customer demand via point-of-sale data, which can help improve planning and reduce variability in the supply chain; better coordination of manufacturing, marketing, and distribution through enterprise resource planning tools; more streamlined order processing and reduced lead times enabled by coordinated logistics information systems.
2. Discuss how your favorite store substitutes information for inventory.
There are a number of answers to this question. The book mentions that several U.S.-based grocery chains have studied Hispanic customers and learned that they place greater emphasis on fresh produce than do other ethnic groups. As a result, grocery stores located in heavily Hispanic areas often stock more fresh produce than to grocery stores located in other areas.
3. Name the six general types of information systems, and give one logistics application for each one that you’ve named.
One type is office automation systems, and a logistics application could be spreadsheets that calculate optimal order quantities. A second is communication systems; one logistics example is voice-based order picking. Transaction processing systems are a third general type, with point-of-sale systems being a logistics application. Management and executive information systems are a fourth general type of information systems; a logistics application involves logistics information systems. A fifth general type of information system is decision support systems, with warehouse management systems being a logistics-related application. The sixth, and final, general type of information system is the enterprise system, represented by logistics modules of enterprise resource planning systems.
4. Do you view the spreadsheet as the most relevant general software package for logisticians? Why or why not?
The text indicates that spreadsheets are indeed the most relevant general software package for logisticians. Today’s spreadsheets allow managers to solve a variety of business problems relatively quickly and inexpensively. Key logistics problems that can now be analyzed by spreadsheets include transportation cost minimization and the optimal number of warehouse locations.
5. How did communication systems facilitate logistics management in the immediate aftermath of situations such as terrorist attacks and natural disasters?
One example involves the substitution of information for inventory. The total shutdown of the
6. What advances in telecommunications technology do you view as being most beneficial to logistics management? Why?
The answer to this question is likely to vary from student to student. Certainly cell phones, e-mail, and wireless communications would be popular choices.
7. Discuss how wireless communications can improve logistical effectiveness and efficiency.
Global positioning systems, for example, allow customers to have real-time visibility in terms of shipment locations and these systems also allow transportation companies to keep better track of their vehicles. Voice-based order picking is another wireless technology that offers the opportunity for increased worker productivity and higher pick accuracy.
8. Discuss the benefits and drawbacks of EDI.
Potential benefits to EDI include reductions in: document preparation and processing time; inventory carrying costs; personnel costs; information float; shipping errors; returned goods; lead times; order cycle times; and ordering costs. In addition, EDI may lead to increases in: cash flow; billing accuracy; productivity; and customer satisfaction. Potential drawbacks include a lack of awareness of its benefits; high setup costs; lack of standard formats; and incompatibility of computer hardware and software.
9. Do you believe that EDI is a viable technology for contemporary logistics management? Support your answer.
Although other technologies such as the Internet and XML offer great promise for logisticians, EDI is likely to continue as a viable technology in part because it reduces costs associated with inventory, order management, and transportation. Indeed, EDI has increased in popularity in the early years of the 21st century. Moreover, there are suggestions that the Internet will be a complement to, rather than a substitute for, EDI.
10. Discuss the relationship between automatic identification technologies and point-of-sale systems.
The idea behind point-of-sales (POS) systems is to provide data and enhance managerial decision making, and automatic identification technologies can be very helpful in so doing. At the present time, POS systems involve scanning universal product codes (UPC), and these data are recorded into a database that supplies information such as the product’s price, applicable taxes, and so on. The specific price for each product, as well as a description, is flashed on a monitor screen near the check-out counter. When all products have been scanned, the customer receives verification that lists the products purchased, their respective prices, and the total bill.
11. Why are some companies hesitant to adopt RFID technology?
One prominent drawback to RFID involves privacy concerns such as the inappropriate use of technology. Another drawback to the widespread adoption of RFID is the costs of installing RFID-related hardware and software, particularly the cost of RFID tags (chips).
12. Discuss the importance of timely and accurate information to a logistics information system.
Timely information can involve several dimensions. For example, “timely” can refer to the up-to-date status of information, which can be influenced by a company’s collection and analyses procedures. Although such information should ideally involve internal and external sources, internal sources of logistics information are not always as plentiful as would be desired. “Timely” can also refer to how quickly a manager receives the requested information; this is influenced by a company’s retrieval and dissemination procedures. Technological advances such as personal digital assistants have facilitated the dissemination of information.
Accurate information may reflect the effectiveness and efficiency of a company’s logistics information system. This means that a logistics information system needs to consider the nature and quality of the relevant data. For example, although the Internet can be a very cheap source of external information, some Internet information is of questionable validity.
13. The chapter listed 10 logistics simulation what not to do’s. Which two do you think are most important? Why?
Any two of the simulation what not to do’s are appropriate answers.
14. What kind of uses does artificial intelligence have for logistics?
Artificial intelligence has been used to manage certain parts inventories for the United States Air Force. A recent logistics-related application of artificial intelligence focused on select issues with highway traffic, including the prediction of urban traffic flows and managing traffic congestion.
15. What is data mining? How might it be used in logistics?
Data mining can be defined as the application of mathematical tools to large bodies of data in order to extract correlations and rules; it uses sophisticated quantitative techniques to find “hidden” patterns in large volumes of data. Data mining has allowed Wal-Mart to discover that when hurricanes are projected to hit the state of Florida, there is a dramatic increase in demand for beer and Kellogg’s Pop Tarts®. As a result, Wal-Mart makes sure that additional stocks of these products are available when hurricanes are projected to hit Florida.
16. Discuss advantages and disadvantages of enterprise resource planning systems.
ERP systems are attractive because they offer the potential for lower costs and both increased productivity and customer satisfaction. In theory, ERP systems provide an opportunity for all functional areas within a firm to access and analyze a common database. This should allow for enterprise-wide coordination of relevant business processes. One of the most frequently mentioned shortcomings involves the costs of installation, and companies often fail to consider relevant costs such as upgraded hardware and employee training. Moreover, ERP implementation can be quite time consuming; actual implementation times may be 2 to 4 times longer than vendor estimates. Unfortunately, glitches in ERP installations often result in severe logistical problems.
17. How might unsuccessful ERP implementations lead to logistical shortcomings?
The book provides an example of ERP implementation problems at a leading manufacturer of home medical products. This company missed shipment deadlines, could not respond to customer inquiries, and had limited information about order status. The order-related problems resulted in a higher-than-normal level of returns associated with incorrect orders and the missed shipments caused the company to spend more for expedited transportation.
18. Refer back to the logistical activities listed in Chapter 1; pick two that you are interested in and research how they have been influenced by the Internet. Are you surprised by your findings? Why or why not?
Again, there is any number of acceptable answers for this question.
19. Discuss the advantages and disadvantages of on-demand software.
Its pay-per-use formula allows customers to avoid high capital costs, and thus becomes a viable option for many companies that could not afford to purchase, install, and maintain application-specific software. Other advantages include faster and less costly installation, a smaller information technology staff, and regular upgrades and updates from the software provider. One drawback is that the regular upgrades and updates can be too frequent and numerous, and customers struggle to keep up with them. There are also limited opportunities for customization and because the Internet is the primary transaction medium, security issues such as data protection can be a concern.
20. From a logistical perspective, what are some differences between online and in-store retailing?
Online orders tend to be more plentiful and in much smaller quantities than in-store retailing. Therefore, online retailing requires an order management system capable of handling high volumes of orders. In addition, online shopping is characterized by open-case picking, rather than full-case picking, and this necessitates packaging containers, such as bags and envelopes, which are well suited to holding small quantities of product. The smaller order quantities associated with online retailing tend to favor transport companies with extensive delivery networks and expertise in parcel shipments. Moreover, return rates for online retailing are higher than in-store retailing and thus online retailers should attempt to make the return process as painless as possible.
PART III
EXAMINATION QUESTIONS
CHAPTER 3: LOGISTICS AND INFORMATION TECHNOLOGY
Multiple Choice Questions
1. Which of the following is not a benefit to utilizing information in logistics?
a. greater knowledge and visibility across the supply chain
b. greater awareness of customer demand via point-of-sale data
c. better coordination of manufacturing, merchandising, and distribution through ERP tools
d. more streamlined order processing and reduced lead time
e. all are benefits
(e; p. 58)
2. How do data and information differ?
a. data is a body of facts in a format suitable for decision making, while information is simply facts
b. they are the same
c. data is simply facts; information is a body of facts in a format suitable for decision making
d. data is associated with decision support systems; information is associated with ERP systems
(c; pp. 58-59)
3. ____ provide effective ways to process organizational business data, to perform calculations, and to create documents.
a. Enterprise resource planning systems
b. Transaction processing systems
c. Decision support systems
d. Office automation systems
(d; p. 59)
4. Spreadsheets represent what general type of information management system?
a. communication system
b. transaction processing system
c. decision support system
d. office automation system
(d; p. 59)
5. The most relevant general software package for logisticians is:
a. word processing
b. e-mail
c. presentation packages
d. spreadsheets
(d; p. 59)
6. Which of the following is not considered a general software package?
a. spreadsheets
b. word processing
c. database management
d. presentation packages
e. all are general software packages
(e; p. 59)
7. ____ help various stakeholders—employers, suppliers, customers—work together by interacting and sharing information in many different forms.
a. Office automation systems
b. Communication systems
c. Transaction processing systems
d. Decision support systems
(b; p. 60)
8. What has emerged as the measuring stock for logistics information technology in the 21st century?
a. the Internet
b. electronic data interchange
c. wireless communication
d. enterprise resource planning systems
(c; p. 61)
9. ____ refers to a network of satellites that transmits signals that pinpoint the exact location of an object.
a. Global positioning systems
b. Geographic information systems
c. Electronic data interchange
d. Transportation management systems
(a; p. 61)
10. All of the following are attributes of contemporary voice-based order picking systems except:
a. more costly
b. more powerful
c. better voice quality
d. less cumbersome for workers
e. all are attributes
(a; p. 61)
11. Electronic data interchange represents what general type of information management system?
a. communication system
b. transaction processing system
c. decision support system
d. office automation system
(b; p. 62)
12. ____________ refers to the computer-to-computer transmission of business data in a structured format.
a. Data mining
b. ERP
c. EDI
d. VMI
(c; p. 62)
13. Which of the following statements about EDI is not true?
a. EDI can have high setup costs
b. EDI can result in increased inventory carrying costs
c. EDI can lead to increased billing accuracy
d. The Internet is likely a complement to, rather than substitute for, EDI
(b; p. 62)
14. Automatic identification systems are an essential component in ____________.
a. every warehouse
b. point-of-sale systems
c. a logistics information system
d. dual distribution
(b; p. 62)
15. The most popular automatic identification system currently in use is ___________.
a. voice-data entry
b. radio frequency identification
c. magnetic strips
d. bar code scanners
(d; p. 63)
16. There has been a great deal of interest in radio-frequency identification (RFID) technology due in part to RFID compliance initiatives championed by Wal-Mart and ____.
a. Starbucks
b. The
c. Procter and Gamble
d. Tesco
(b; p. 63)
17. There are suggestions that widespread adoption of RFID will only occur when the price of read-only tags drops below ____ cents.
a. 50
b. 25
c. 10
d. 5
(d; p. 63)
18. A logistics information system begins with:
a. a logistics manager requesting information
b. a good computer system
c. lots of money
d. a customer order
(a; p. 63)
19. All of the following statements about logistics information systems are true, except:
a. “timely” can refer to the up-to-date status of information
b. internal sources of logistics information are relatively plentiful
c. “timely” can refer to how quickly a manager receives requested information
d. a LIS must be concerned with the nature and quality of data
(b; pp. 63-64)
20. The primary advantage of ____________ is that it enables a firm to test the feasibility of proposed changes at relatively little expense.
a. data mining
b. expert systems
c. simulation
d. benchmarking
(c; p. 65)
21. The initial focus of many logistics simulation programs is ____________.
a. reducing transportation costs
b. reducing inventory costs
c. reducing warehousing costs
d. improving customer service
(d; p. 65)
22. ____________ refers to a branch of computer science that studies the computational requirements for tasks such as perception, reasoning, and learning, and develops systems to perform those tasks.
a. Psycho cybernetics
b. Data mining
c. Artificial intelligence
d. Simulation
(c; p. 65)
23. All of the following are examples of artificial intelligence, except:
a. expert systems
b. fuzzy logic
c. neural networks
d. artesian systems
e. all are examples
(d; p. 65)
24. Warehouse management systems represent an example of what general type of information management system?
a. communication system
b. transaction processing system
c. decision support system
d. office automation system
(c; p. 66)
25. Which of the following is not a logistics-related decision support system?
a. simulation
b. application-specific software
c. artificial intelligence
d. electronic data interchange
e. all are logistics-related decision support systems
(d; pp. 65-66)
26. ____________ refers to the application of mathematical tools to large bodies of data in order to extract correlations and rules.
a. Fuzzy logic
b. Factor analysis
c. Data mining
d. Linear regression
(c; p. 67)
27. ____ create and maintain consistent data processing methods and an integrated database across multiple business functions.
a. Logistics information systems
b. Enterprise systems
c. Decision support systems
d. Transaction processing systems
(b; p. 67)
28. The origins of contemporary ERP systems can be traced back to logistics and ____________.
a. manufacturing
b. marketing
c. finance
d. accounting
(a; p. 67)
29. Which of the following statements about ERP is false?
a. ERP’s origins can be traced back to finance and manufacturing
b. ERP implementation costs can easily reach the tens of millions of dollars
c. Top management support is essential for successful ERP implementation
d. ERP glitches often have a logistical component to them
(a; pp. 67-68)
30. All of the following are potential costs associated with ERP implementation, except:
a. employee training
b. upgraded computer hardware
c. data conversion
d. system testing
e. all are costs
(e; p. 68)
31. A general rule of thumb is that the actual time to implement ERP systems may range from ____________ to ____________ times longer than the time period specified by the ERP vendor.
a. 1 ½ ; 2
b. 2; 3
c. 2; 4
d. 3; 4
(c; p. 68)
32. Research suggests ____________ and ____________ to be the logistics functions with the highest degree of Internet usage.
a. transportation; order management
b. order management; inventory management
c. warehousing; inventory management
d. transportation; warehousing
(a; p. 69)
33. Perhaps the most popular application of on-demand software involves ____.
a. warehouse management systems
b. transportation management systems
c. collaborative forecasting
d. inventory optimization
(b; p. 69)
34. Channel disintermediation refers to ____________.
a. multiple functions being performed by one intermediary
b. fewer ways of distributing a product
c. removing intermediaries between producer and consumer
d. the emergence of new types of intermediaries
(c; p. 69)
35. Which of the following statements is false?
a. orders associated with online retailing tend to be for smaller quantities than in-store retailing
b. online retailers are challenged by last mile considerations
c. online retailing and in-store retailing experience similar rates of product return
d. online retailing is characterized by open-case, rather than full-case, picking
e. all statements are true
(c; p. 70)
True-False Questions
1. The effective and efficient use of information allows organizations to either reduce costs or improve customer satisfaction. (False; p. 58)
2. “Data” and “information” are synonymous terms. (False; pp. 58-59)
3. Office automation systems provide effective ways to process personal and organizational business data, to perform calculations, and to create documents. (True; p.59)
4. The most relevant general software package for the logistician is the spreadsheet. (True; p. 59)
5. A transaction processing system helps people work together by interacting and sharing information in many different forms. (False; p. 60)
6. The Internet has emerged as the measuring stick for logistics information technology during the first decade of the 21st century. (False; p. 61)
7. Global positioning systems can be helpful in locating lost or stolen transportation equipment. (True; p. 61)
8. Contemporary voice-based picking systems are less costly than earlier voice-based systems. (True; p. 61)
9. Global positioning systems often pay for themselves within six months. (False; p. 61)
10. In batch processing, data are collected and stored for processing at a later time. (True; p. 61)
11. EDI is an example of a logistics-related transaction processing system. (True; p. 62)
12. The Internet is a substitute for EDI. (False; p. 62)
13. EDI has increased in popularity during the early years of the 21st century. (True; p. 62)
14. The idea behind point-of-sale systems is to provide data to guide and enhance managerial decision making. (True; p. 62)
15. Radio-frequency identification is the most popular automatic identification system currently in use. (False; p. 63)
16. One prominent drawback to radio-frequency identification (RFID) involves privacy concerns. (True; p. 63)
17. It is suggested that widespread adoption of RFID will only occur when the price for read-only chips drops below 5 cents apiece. (True; p. 63)
18. A logistics information system begins with a logistics manager requesting information and ends with the manager receiving regular and customized reports. (True; p. 63)
19. Internal sources of logistics information are not always as plentiful as might be desired. (True; p. 64)
20. With respect to a logistics information system, external information is more important than internal information. (False; p. 64)
21. “Timely” information can refer to its nature and quality. (False; p. 64)
22. Simulation is an example of a logistics-related decision support systems technique. (True; p. 65)
23. The primary advantage of simulation is that it enables a firm to test the feasibility of proposed changes at relatively little expense. (True; p. 65)
24. Neural networks are a type of logistics information system. (False; p. 65)
25. Application-specific software is a type of decision support system. (True; p. 66)
26. Correlation analysis uses sophisticated quantitative techniques to find “hidden” patterns in large volumes of data. (False; p. 67)
27. Wal-Mart and its vendors make extensive use of data mining to improve supply chain efficiency and effectiveness. (True; p. 67)
28. The attractiveness of ERP systems comes from their potential for lower costs as well as increased productivity and customer satisfaction. (True; p. 67)
29. The origin of ERP systems can be traced back to finance and manufacturing. (False; p. 67)
30. There are suggestions that consultant fees for ERP implementations may be three times as costly as the software itself. (True; p. 68)
31. A general rule of thumb is that the actual time to implement an ERP system may range from 1 ½ to 2 times longer than the time period specified by the ERP vendor. (False; p. 68)
32. Organizations with successful ERP implementations recognize that ERP requires major changes in the way they operate. (True; p. 68)
33. The Internet offers the potential for both cost reductions and service improvements across and within logistics functions. (True; p. 69)
34. The two logistics functions with highest degree of Internet usage are warehousing and transportation. (False; p. 69)
35. Warehouse management systems are perhaps the most popular logistics-related on-demand software. (False; p. 69)
36. Security issues such as data protection are a key concern with on-demand software. (True; p. 69)
37. Channel disintermediation refers to fewer ways of distributing a product. (False; p. 69)
38. There are few logistical similarities between online and in-store retailing. (False; p. 70)
39. The smaller order quantities occasioned by online retailing tend to favor transport companies with extensive delivery networks and expertise in parcel shipments. (True; p. 70)
40. The return rates associated with e-commerce are quite similar to those associated with other kinds of retailing. (False; p. 70)
PART IV
CASE SOLUTIONS
CASE 3-1 SPORTS CAR CARE
Question 1: If Tayfun had a sixth car to repair/repaint could he fit it inside the 30 working days limit? If so, how long could the repairs and repaint take?
Tayfun could not repair/repaint a sixth car within the 30-day limit. The Porsche repairs are finished on Day 28, and its painting occurs on Days 29 and 30.
Question 2: Somewhat to his embarrassment, Tayfun suddenly learned that only cars built in the
Cars
Repair (days)
Paint (days)
(Q) Qvale
4
3
(F) Ford Shelby
2
7
(O) Olds Toronado
8
6
(C) Corvette
1
7
(D) Dodge Viper
9
5
Determine the order of the
The order is as follows: first is the Corvette, followed by the Shelby. This is followed by the Olds Toronado, and then comes the Dodge Viper. Finally comes the Qvale.
Question 3: Draw a Gantt chart of the given work processes.
Use Exhibit 3-A as a guide.
Question 4: Calculate the total least amount of processing time for the work processes.
The least total amount of processing time for the work is 29 days.
Question 5: If Tayfun had a sixth
Yes, one more car could be added. This car could take 5 days to repair and 1 day to paint/repaint.
CASE 3-2 JUST-IN-TIME IN KALAMAZOO
Question 1: What is the total annual cost of maintaining the components inventory under the present system?
Current system
Item
Average distance from vendor (in miles)
Number of units used each week
Current lot
size purchased
Unit cost
Average freight cost
per unit
Gas range
1,145
10
200
$100
$20
Toilet
606
10
240
$80
$18
Pump
26
56
125
$16
$3
Refrigerator (large)
22
6
120
$110
$20
Refrigerator (small)
22
7
15
$95
$15
Foam cushion
490
675
1,500
$8
$2
CB radio
(type D)
1,800
9
24
$136
$11
Dome lights
3
824
1,720
$2
None
Awning bracket
48
540
1,200
$4
$1
Insect screen
159
570
1,240
$7
$1
Current system (continued)
Item
Safety stock
Average inventory
Total inventory
Inventory cost
Inventory carrying charges
Inventory maintenance cost
Gas range
40
100
140
$62,400
$3,360
$65,760
Toilet
40
120
160
$50,960
$3,136
$54,096
Pump
56
63
119
$55,328
$450
$55,778
Refrigerator (large)
6
60
66
$40,560
$1,716
$42,276
Refrigerator (small)
7
8
15
$40,040
$319
$40,359
Foam cushion
1,350
750
2,100
$351,000
$4,200
$355,200
CB radio (type D)
36
12
48
$68,796
$1,411
$70,207
Dome lights
824
860
1,684
$85,696
$674
$86,370
Awning bracket
540
600
1,140
$140,400
$1,140
$141,540
Insect screen
1,140
620
1,760
$237,120
$2,816
$239,936
Total inventory maintenance cost per year = $1,151,522
Using JIT
Item
JIT lot size
Unit cost
Average freight cost per unit (surface)
Inventory maintenance
cost
Gas range
10
$105
$22
$66,040
Toilet
10
$100
$18
$61,360
Pump
7
$15
$4
$55,328
Refrigerator (large)
6
$113
$25
$43,056
Refrigerator (small)
1
$85
$15
$36,400
Foam cushion
75
$7
$3
$351,000
CB radio (type D)
3
$130
$26
$73,008
Dome lights
36
$4
None
$171,392
Awning bracket
60
$5
$1
$168,480
Insect screen
50
$7
$2
$266,760
Total inventory maintenance cost per year = $1,292,824.00
The table in this case is a 10% sample of the firm’s inventory and reflects the inputs needed for one week’s activities. We must calculate the average stock on hand for each item (safety stock + ½ order lot size), and must calculate the cost per item (unit cost plus freight). For the first item—gas ranges—a safety stock of 40 units is maintained, and ½ the order lot size is 100 units, for a total inventory in stock of 140 units. Unit cost ($100) plus freight ($20) equals $120. Multiplying average inventory (140) times $120 equals $16,800. Doing all the items on table gives a total of $96,175. Because this is a 10% sample, the total parts inventory would be worth $961,750. Inventory carrying costs on this, at 20% per year, would be $192,350.
Question 2: What would be the total annual cost of maintaining the components inventory under the JIT system (assuming no safety stocks)?
One would look at the average number used per week, but apply the new, usually higher unit costs and freight charges. For one week’s activity shown on the table, the new cost would be $24,862 per week (compared with about $21,818 under the existing system). Hence the cost of the JIT system is higher.
Question 3: Should Ballenger take into account any other costs or benefits from the JIT system? If so, what are they?
Under a JIT system, Ballenger should exhibit less concern with various problems associated with maintaining a large inventory such as shrinkage and obsolescence.
Question 4: If the JIT system is adopted, are there safety stocks of any item that should be maintained? If so, which ones, and how much?
Unfortunately, the case does not provide sufficient information to answer this question. Parts that are crucial to the process would need to be indicated by management, or perhaps work-flow process charts.
Question 5: If the JIT system is adopted, what changes, if any, should occur in the relationships between Ballenger’s firm and his suppliers of components? Discuss.
He would need better discipline in terms of prompt delivery and freedom from defects.
Question 6: Assume that Ballenger has switched to the JIT system and that he receives a surprise phone call from a competitor who is going out of business. The competitor wants to sell Ballenger 7,000 dome lights of the type listed on Exhibit 3-C. Should Ballenger buy them? If so, at what price?
Probably not because this would undermine the discipline envisioned by the JIT system. On the other hand, if the purchase price was very low, and there were no unique storage requirements, Ballenger might buy them.
Question 7: Carrying costs are 20%. Is there a level of carrying costs at which both Ballenger’s present system and a JIT system have similar costs? If so, what is it?
Using a basic spreadsheet package, we found that at the astronomical rate of 167%, the two systems were equal.
DISCUSSION
This is a difficult case although it can be approached in several ways. One must calculate the average costs of all the goods, as they are used each week, plus a figure for inventory carrying costs.
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