How can the EPQ model be economically reconciled with just-in-time (JIT) production?
A) Reduce annual demand (D).
B) Increase annual holding cost per unit (H).
C) Decrease ordering cost (S).
D) Increase annual holding cost per unit (H) and Decrease ordering cost (S).
E) The two cannot be reconciled.

Question

Quizplus · Accepted Answer

To reconcile the EPQ model with JIT production, it is necessary to decrease the ordering cost (S) to reduce the frequency of orders and increase the order size, which will align with the JIT philosophy of reducing inventory and waste. This will not impact the EPQ equation as long as the annual demand (D) remains constant and the annual holding cost per unit (H) does not increase to offset the savings from reduced ordering costs. Therefore, the best choice is to decrease ordering cost (S).

How Can the EPQ Model Be Economically Reconciled with Just-In-Time