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      Question

      A company shifts from monthly bulk purchases of raw

      material to frequent small deliveries that arrive exactly when needed for production. The main objective of this practice is to:
      A Increase safety stock Correct Answer Incorrect Answer
      B Reduce supplier dependency Correct Answer Incorrect Answer
      C Eliminate inventory holding and carrying cost Correct Answer Incorrect Answer
      D Increase production batch size Correct Answer Incorrect Answer
      E Standardise product design Correct Answer Incorrect Answer

      Solution

      This practice describesĀ Just-in-Time (JIT)Ā inventory management. By receiving frequent, small deliveries exactly when needed, a company minimizes the amount of stock sitting in a warehouse. This significantly reduces or eliminates:Ā 

      • Warehousing costs:Ā Rent, utilities, and labor required for storage.
      • Financial costs:Ā Capital tied up in inventory (opportunity cost).
      • Risk costs:Ā Potential for stock to become obsolete, damaged, or stolen while in storage

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