JIT & the EOQ model: odd couple no more!

Article Abstract:

The majority of manufacturers who have used the economic order quantity (EOQ) model of Ford Harris (1915) to minimize annual relevant costs have employed the EOQ model incorrectly and computed a higher lot size than necessary since accountants typically fail to identify relevant costs. Calculations made with the EOQ model often ignore the costs associated with carrying inventory. It was assumed that the EOQ model dictated large lots and infrequent production runs in order to minimize annual relevant costs. Thus, the EOQ model was seen to be incompatible with just-in-time (JIT) manufacturing theories since JIT systems rely on small lots and frequent production runs. However, proper application of the EOQ model is not incompatible with JIT. When reductions in setup costs are realized and the costs of carrying inventory are calculated, the EOQ lot size drops.

Research, Economic research, Just in time inventory systems, Just in time systems, Order picking systems, Order picking, Harris, Ford

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Linking cost to price and profit

Article Abstract:

GenCorp Polymer Products (GPP) has made the transition from cost accounting to cost management by developed a system that helps with the discovery of performance improvement opportunities and the implementation of solutions. The system was developed to respond to the company's evolving technology and decision making needs. Primary factors behind production costs, including material recipes, reactor capacities, and reactor cycle times, were identified in interviews and by analyzing historical data. The information was then used to develop a product profit velocity ratio emphasizing variables that are controllable by various departments within the company.

Accounting and auditing, Cost accounting, GenCorp Polymer Products

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