This case is about Mini Motor Homes Manufactured by Jim Ballenger in Kalamazoo, Michigan. According to the case, Jim Ballenger has a problem to make a decision to change his current inventory system to JIT system. From the current inventory system, Jim has spent a lot of cost on his inventory system. This is because mostly of the component used in manufactured are bought from other vendor and his company actually only manufactured very few of it component. Because of this, the transportation and inventory cost contribute to a relatively large portion of its component part of expenses.
Jim Ballenger was very aware on the cost that may arise once the JIT system adopted. The cost that he may be aware to arise is the cost of management standpoint, the shipment of the component and the rate of the component purchased. Besides that, he also has inquiry about the component purchased will be arrived on time or not or the duration taken of delivering the component. This is because, if the component are not suitable to use, his team has to replace it and it will entail expensive rush order for the replacement component or the downtime for the entire plant. Jim Ballenger also concern about his relationship with his suppliers.
He thought that his supplier may difficult become one part of his team. Since the supplier will expect to have special effort on their quality control or delivery flexibility on behalf of one of its almost miniscule discount. Jim Ballenger has been rent a public warehouse near his plant to keep his inventory that cost $500,000 to $1,000,000, which he paid more than 1. 5% per month from the borrowed funds to buy it. Since he starts to producing the different model, and using so many different appliances, the cost of the safety stock increased day by day. The JIT presume table has drawn with two considerations.
Since the major component, chassis can be purchased at one time basis from the local supplier and out of stock situation is hardly happen, thus this component has excluded from using JIT system. The two considerations will be (1) Ballenger’s inventory carrying costs of are assumed to be 20% per year on the average investment in inventory on hand comprising acquisition and transportation costs, (2) those components that can obtain from closer sources, one week of the safety stock is sustain, if the component is further form the stock, two weeks to one month of safety stock should be available.