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Modeling stockout risk and JIT purchasing in ready-mixed concrete batching plants

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  • Wu, Min
  • Shen, Qiping
  • Xu, Maozeng
  • Wu, Desheng

Abstract

A model for comparing the inventory costs of purchasing under an economic order quantity (EOQ) with a price discount system and a just-in-time (JIT) order purchasing system concluded that JIT purchasing is virtually always the preferable inventory ordering system. This claim however contradicts the practices observed in ready-mixed concrete (RMC) batching plants. By expanding the EOQ model and considering the stockout risks, this paper derives new EOQ-JIT cost indifference point equations. We show that it is possible for an EOQ with a price discount system to be more cost-effective than a JIT system when the stockout risks associated with the JIT purchasing system are high or the annual demand is either too low or too high. The case study conducted in the RMC industry in Chongqing, China supports our proposition.

Suggested Citation

  • Wu, Min & Shen, Qiping & Xu, Maozeng & Wu, Desheng, 2013. "Modeling stockout risk and JIT purchasing in ready-mixed concrete batching plants," International Journal of Production Economics, Elsevier, vol. 144(1), pages 14-19.
    • Handle: RePEc:eee:proeco:v:144:y:2013:i:1:p:14-19
    DOI: 10.1016/j.ijpe.2012.03.017
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    References listed on IDEAS

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    1. Wu, Desheng & Olson, David L., 2008. "Supply chain risk, simulation, and vendor selection," International Journal of Production Economics, Elsevier, vol. 114(2), pages 646-655, August.
    2. D Wu & D L Olson, 2010. "Enterprise risk management: coping with model risk in a large bank," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(2), pages 179-190, February.
    3. Schniederjans, Marc J. & Cao, Qing, 2000. "A note on JIT purchasing vs. EOQ with a price discount: An expansion of inventory costs," International Journal of Production Economics, Elsevier, vol. 65(3), pages 289-294, May.
    4. Hooshang M. Beheshti, 2010. "A decision support system for improving performance of inventory management in a supply chain network," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 59(5), pages 452-467, June.
    5. Fazel, Farzaneh & Fischer, Klaus P. & Gilbert, Erika W., 1998. "JIT purchasing vs. EOQ with a price discount: An analytical comparison of inventory costs," International Journal of Production Economics, Elsevier, vol. 54(1), pages 101-109, January.
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    Cited by:

    1. Ziyang Li & Qianwei Ying & Wu Yan & Chenjun Fan, 2022. "Does just‐in‐time adoption have an impact on corporate innovation: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1599-1635, April.
    2. Oluseye Olugboyega & Obuks Ejohwomu & Emmanuel Dele Omopariola & Alohan Omoregie, 2023. "Sustainable Ready-Mixed Concrete (RMC) Production: A Case Study of Five RMC Plants in Nigeria," Sustainability, MDPI, vol. 15(10), pages 1-17, May.
    3. Huo, Baofeng & Gu, Minhao & Jiang, Bin, 2018. "China-related POM research: Literature review and suggestions for future research," International Journal of Production Economics, Elsevier, vol. 203(C), pages 134-153.

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