Abstract: The currently available EOQ-JITcost indifference point models suggest that the Just-In-Time (JIT) purchasingapproach is always preferred to the Economic Order Quantity (EOQ) approach whenthe JIT purchasing approach can capitalize on physical plant space reduction. It was found that these models did not empiricallystudy the capability of an inventory facility to hold the EOQ-JIT costindifference point’s amount of inventory. In addition, some important costcomponents under the inventory management systems were ignored by the models,for example, the out-of-stock costs and the impact of inventory policy onproduct quality, production flexibility. By developing the JIT PurchasingThreshold Value (JPTV) models, this study suggests that the advantages of JITpurchasing may have been overstated in theory. The JPTV models of this studyovercome the two limitations of the existing EOQ-JIT cost indifference pointmodels. The case studies conducted in the RMC industry in Chongqingand Singaporesupported the propositions in this study.

1 Introduction

The Economic Order Quantity (EOQ)approach can be regarded as the conventional method for purchasing materials. EOQis the amount of orders that minimizes the total costs that are required toorder and hold inventory. This approach leads to placing of large-sized andinfrequent orders (Schonberger, 1982). The EOQ approach was originallyconceptualized by Harris (1915) in 1915. Ray and Chaudhuri (1997) and Charabarty,Giri and Chaudhuri (1998) suggested that this approach had been a fundamentaltechnique for inventory management decisions and continued to be the startingpoint in the development of many subsequent inventory purchasing models.

Materials can also be purchasedin a Just-In-Time (JIT) fashion (Low and Chan, 1997; Monden, 1998), which advocatessmaller-sized and more frequent orders. This approach was originally exploredby Kanzler as a method for reducing inventory levels at the Fordson TractorPlant in the 1920s (Peterson, 2002). The JIT purchasing method is an importanttechnique of the JIT philosophy, which is regarded as one of the most importantproductivity enhancement management innovations of the 20^thcentury inthe manufacturing industry (Schonberger, 1982). The JIT approach provides theright materials, in the right quantities and quality, just in time forproduction (Vokurka and Davis, 1996). 

Although it was originallyintroduced in the manufacturing industry, the implementation of the JITpurchasing approach has been extended beyond that. Its successful implementationin many industries prompted many companies that are still using the EOQapproach to ponder whether they should switch to the JIT purchasing approachfor managing their inventories.

1.1Research problem

Ready-Mixed Concrete (RMC) is animportant building material that is widely used today in the constructionindustry (Anson, Tang and Ying, 2002; Wang, Ofori and Teo, 2001). RMC mixing isa prototypical example of JIT construction processes (Tommelein and Li, 1999). Inspiredby the success achieved through the implementation of the JIT philosophy in themanufacturing industry, Wu and Low (2003) andLow and Wu (2005) investigated the implementation status of the JIT purchasingin the RMC industries in Singaporeand Chongqing throughsurveys. The surveys found thatboth the EOQ approach and the JIT purchasingapproach were adopted by companies to manage the procurement of raw materialsin the RMC industry.