Operations Management: An Integrated Approach, 5th Edition

JUSTIFYING SMALLER ORDER QUANTITIES

One of the principles of the just-in-time philosophy, discussed in Chapter 7, is to reduce order quantities ideally down to an order size of one unit. Smaller orders improve customer responsiveness, reduce cycle inventory, reduce work-in-process (WIP) inventory, and reduce inventories of raw materials and purchased components. Since many good things happen with smaller order quantities, we need to understand how companies economically reduce their order quantities.

LINKS TO PRACTICE Kenworth Trucks

www.kenworth.com

Kenworth Trucks, a manufacturer of elite custom-built trucks, leads the industry in operations due largely to the just-in-time effect. Turning out over 35 trucks a day, Kenworth has been able to cut production time from the industry norm of six to eight weeks down to a mere three weeks. Such an outstanding feat is the result of the implementation of several cutting-edge ideas. Most importantly, there is the use of electronic transmission, which allows the plant to receive specifications as soon as a buyer has placed an order and which immediately involves parts suppliers in the details of the order. This synchronization results in supplies going almost directly to the assembly line. With such a fine-tuned operation, it is no wonder Kenworth Trucks is known as the premier of its industry!

Let's use the economic production quantity model ...