Explain how electronic data interchange (EDI) and just-in-time (JIT) inventory management might be used in combination to improve physical distribution effectiveness and efficiency.

What will be an ideal response?

Whether a company uses a manual or an electronic order-processing system depends on which method provides greater speed and accuracy within cost limits. Manual processing suffices for small-volume orders and can be more flexible in certain situations. Most companies, however, use electronic data interchange (EDI), which uses computer technology to integrate order processing with production, inventory, accounting, and transportation. Within the supply chain, EDI functions as an information system that links marketing channel members and outsourcing firms together. It boosts accuracy, reduces paperwork for all members of the supply chain, and allows them to share information on invoices, orders, payments, inquiries, and scheduling. Many companies encourage suppliers to adopt EDI to reduce distribution costs and cycle times.Efficient inventory management with accurate reorder points is crucial for firms that use a just-in-time (JIT) approach, in which supplies arrive just as they are needed for use in production or for resale. Companies that use JIT (sometimes referred to as lean distribution) can maintain low inventory levels and purchase products and materials in small quantities only when needed. Usually there is no safety stock in a JIT system. Suppliers are expected to provide consistently high-quality products exactly when they are needed. JIT inventory management requires a high level of coordination between producers and suppliers, but it eliminates waste and reduces inventory costs. When a JIT approach is used in a supply chain, suppliers may move operations close to their major customers in order to provide goods as quickly as possible. 

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