[lindjlny]

Does anybody know what happens to cost per purchase order (increases or decreases) and cost of carrying inventory (increases or decreases) when the just-in-time inventory method is implemented? Any help would be greatly appreciated.

[SusanStudies]

I think they would both DECREASE. When you have a JIT system, it is typical that inventory reordering is done automatically once inventory declines to an established re-order point. Since it is an automated re-order, it would cut down on the costs of re-issuing P.O.s. Also, since the purpose of JIT inventory is to get items to production as they are required and not before hand, the cost to carry the inventory is less.

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[rknight21]

purchase order costs goes up since more orders are made……carrying cost is decrease since less inventory is on hand and thats also the reason why more orders are made resulting an increase in purchase order cost……. the benefit to the company is when the total purchase order cost is lower than the carrying cost

i have seen this question before on one of my review courses

[lindjlny]

@ rknight21, that's what I'm thinking to. The only reason why I;m second guesing myself is because I'm thinking that cost “per” purchase order will decrease because you're ordering less volumer per order?

[jbeans2009]

U'd more likely use JIT system when cost/purchase order is low. Otherwise, you wouldn't be saving $ by lessening storage cost, but adding purchase order cost. Not sure how that ties in to cost/purchase order as result of using JIT.

[Author]

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