If a just-in-time purchasing system is successful in reducing the total inventory costs of a manufacturing company, which of the following…

A successful just-in-time (JIT) purchasing system is designed to minimize inventory levels by receiving materials only as they are needed for production. This directly reduces inventory carrying costs, which include expenses for storage, insurance, obsolescence, and capital tied up in inventory. However, by operating with minimal or no safety stock, the organization becomes more vulnerable to disruptions in the supply chain. This heightened exposure increases the risk of a stockout, where a lack of materials can halt production or lead to lost sales. Therefore, the most likely outcome is a decrease in carrying costs accompanied by an increase in potential stockout costs.

A (Combination 1): Carrying costs decrease, not increase, as the fundamental goal of JIT is to hold minimal inventory.

B (Combination 2): Carrying costs decrease, not increase. Furthermore, stockout costs are more likely to increase due to the lack of buffer inventory.

C (Combination 3): While carrying costs decrease, the risk of stockouts and their associated costs increases, not decreases, due to the absence of safety stock.

1. Heizer

J.

Render

B.

& Munson

C. (2020). Operations Management: Sustainability and Supply Chain Management (13th ed.). Pearson. In Chapter 16

"Lean Operations

" the text explains that JIT aims for "the minimum inventory necessary

" which reduces holding (carrying) costs. It also notes that a JIT system "has no slack

" meaning a disruption can cause the entire production system to stop

highlighting the increased risk of stockouts (pp. 654-655).

2. Horngren

C. T.

Datar

S. M.

& Rajan

M. V. (2015). Cost Accounting: A Managerial Emphasis (15th ed.). Pearson. Chapter 20

"Inventory Management

Just-in-Time

and Simplified Costing Methods

" identifies carrying costs as a primary cost JIT seeks to minimize (p. 738). The chapter also explicitly states

"The cost of a stockout can be high... To minimize stockout costs

companies that use JIT purchasing choose their suppliers carefully

" acknowledging the inherent increase in stockout risk (p. 743).

3. Stevenson

W. J. (2018). Operations Management (13th ed.). McGraw-Hill Education. In Chapter 14

"JIT and Lean Operations

" the text lists "reduced inventory levels" as a primary benefit

which lowers carrying costs. Conversely

it lists "no buffer stock to absorb disruptions" as a key risk

which directly translates to a higher probability of stockouts (Section 14.4

"Benefits and Risks of Lean Systems").