Question

Alfredo manufactures high-quality tennis shoes for specific sports. He has a large storage facility at the manufacturing plant because he stores a large supply of shoes. He has them on hand so he will never be out of stock when they are requested. He also keeps a large quantity of materials on hand to rapidly make shoes if he doesn’t have the shoes that are ordered in his storage facility. The holding cost of all the storage is causing a huge financial drain on his business.
He has come to you for advice about how to eliminate these overhead costs. What is your best advice to him?

a. Review the work-in-progress inventory and complete all shoes in a timely manner.
b. Require buyers to pick up their shoes immediately so he is not required to store them.
c. Route materials to the manufacturing plant so they arrive where they are needed when they are needed.
d. Change to a just-in-time inventory system and make the shoes as they are ordered rather than making and storing many shoes and hoping to sell them.

Answer 1

Answer:

d. Change to a just-in-time inventory system and make the shoes as they are ordered rather than making and storing many shoes and hoping to sell them.

Explanation:

In the Just-in-time inventory management system, materials purchased go straight to the production line. The business keeps minimum or nil raw material in its stores. Demand for goods guides the production process.

Should Alfredo manufactures adopt a Just in time production style, its inventory budgetary requirement will significantly reduce. Alfredo will be ordering for material need for production at that moment. The company will be manufacturing shoes that customers are ready to buy. Its cost of finished inventory will also decrease.

For Just-in-time system  to work well at Alfredo, managers must learn how to predict demand accurately and employ an excellent order management system