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

Min Wu, Qiping Shen, Maozeng Xu, Desheng Wu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

11 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)14-19
Number of pages6
JournalInternational Journal of Production Economics
Volume144
Issue number1
DOIs
Publication statusPublished - 1 Jul 2013

Keywords

  • Chongqing
  • EOQ-JIT cost-indifference point
  • Price discount
  • Ready-mixed concrete
  • Risk
  • Stockout

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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