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

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.