Case 2-1

1. What is the total annual cost of maintaining the components inventory under the present system?

It produces 10 min motor homes per week, times 4 weeks for a month which is the safety stock. So the average stock for each item is safety stock + half order lot size. The total cost of each item is unit cost plus freight cost. Therefore after the calculation, the total annual cost of maintaining the components inventory is $1,292,824.

2. What would be the total annual cost of maintaining the components inventory under the JIT system (assuming no safety stocks)?

If we take look at the average number used each week, the JIT system is higher.

3. Should Ballenger take into account any other costs or benefits from the JIT system? If so, what are they?

Yes. I think Ballenger should take from the JIT system because JIT system will be much easier to maintaining a large inventory. That will make Ballenger less worry on that especially on different stuffs.

5. If the JIT system is adopted, what changes, if any, should occur in the relationships between Ballenger’s firm and his suppliers of components? Discuss?

When the JIT system is adopted, Ballenger’s suppliers need to have good efficiency on delivery, and make sure there is no defect. If they could do well on prompt delivery, then it will be great for Ballenger.

6. Assume that Ballenger has switched to the JIT system and that he receives a surprise phone call from a competitor who is going out of business. The competitor wants to sell Ballenger 7,000 dome lights of the type listed in Exhibit 2-A. Should Ballenger buy them? If so, at what price?

My suggestion is not buying them because that would undermine the discipline envisioned by the JIT system. However if the price could lower then Ballenger’s and at same time, there are no unique storage requirements on them, he should think to buy them.