Conceptual illustration comparing EOQ and JIT inventory systems.

EOQ vs. JIT: Which Inventory System Saves You More?

Theo Raines in Business & Economy June 2025 • 4 min read.

"Unlock the secrets to efficient inventory management and discover whether the Economic Order Quantity (EOQ) or Just-In-Time (JIT) system is the right fit for your business."

In recent decades, many companies have leaned towards implementing Just-In-Time (JIT) systems over the traditional Economic Order Quantity (EOQ) model. This shift is largely due to JIT's effectiveness in identifying and eliminating waste within an organization. Since its introduction in the 1970s, JIT has been viewed as an inventory reduction system, whereas EOQ involves ordering at set intervals, which can lead to increased holding costs.

Despite the holding costs associated with EOQ, many companies remain hesitant to switch to JIT, and for good reason. While eliminating inventory can drastically reduce holding costs, it may also increase other costs. These can include setup costs and potential stock-out costs. It’s important to note that JIT systems have inherent hidden costs that must be considered when comparing inventory models.

To help businesses navigate these complex decisions, this article provides a comprehensive comparison between EOQ and JIT. We'll explore the circumstances under which each system proves more cost-effective, and how to create a sensible link between inventory management and financial considerations.

Understanding the Key Differences Between EOQ and JIT

Conceptual illustration comparing EOQ and JIT inventory systems.

Choosing an inventory management system has become increasingly complex. EOQ focuses on ordering a specific quantity of inventory to minimize costs, whereas JIT aims to minimize inventory carrying costs by avoiding inventory. The EOQ model orders a calculated amount of inventory to be used later, balancing ordering and holding expenses. JIT insists on minimizing or eliminating inventory, thereby reducing carrying costs.

Several factors influence whether EOQ or JIT is more appropriate for a given company. These include demand variability, holding costs, ordering costs, potential stock-out costs, and the company's overall financial strategy. Companies must also consider hidden costs, such as those associated with setting up and maintaining a JIT system.

EOQ (Economic Order Quantity):
- Orders large quantities at fixed intervals.
- Balances ordering costs with holding costs.
- May lead to higher inventory levels and carrying costs.
- Suitable for stable demand and predictable markets.
JIT (Just-In-Time):
- Orders small quantities frequently.
- Minimizes inventory and holding costs.
- Requires close coordination with suppliers.
- Can be vulnerable to disruptions in the supply chain.

The decision to adopt one system over the other should be based on a thorough analysis of these factors, along with an understanding of the company's specific circumstances and objectives. By carefully weighing the pros and cons of each system, companies can make informed decisions that optimize their supply chain and enhance financial performance.

Making the Right Choice for Your Business

Selecting the right inventory management system depends on a wide range of factors, including your business's specific needs, financial situation, and risk tolerance. This exploration of EOQ and JIT systems provides a framework for evaluating these options and making informed decisions. By considering all relevant costs and benefits, you can choose the system that best supports your business goals and drives long-term success.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.5267/j.ijiec.2015.4.001, Alternate LINK

Title: A Revision On Eoq/Jit Indifference Points

Subject: Industrial and Manufacturing Engineering

Journal: International Journal of Industrial Engineering Computations

Publisher: Growing Science

Authors: Mehdi Rajabi Asadabadi

Published: 2015-01-01

Everything You Need To Know

What are the fundamental differences between the Economic Order Quantity (EOQ) and Just-In-Time (JIT) inventory management systems?

The Economic Order Quantity (EOQ) system operates by ordering large quantities of inventory at fixed intervals, aiming to balance ordering costs with holding costs. This approach can lead to higher inventory levels and carrying costs but is suitable for businesses with stable demand and predictable markets. Conversely, the Just-In-Time (JIT) system orders small quantities frequently to minimize inventory and holding costs. JIT requires close coordination with suppliers and can be vulnerable to supply chain disruptions.

Are there hidden costs associated with Just-In-Time (JIT) that companies should consider when comparing it to the Economic Order Quantity (EOQ) model?

While the Just-In-Time (JIT) system is effective in reducing holding costs, it's essential to consider the potential increase in setup costs and the risk of stock-out costs. The Economic Order Quantity (EOQ) model, despite leading to higher inventory levels, may avoid these issues in certain contexts. Hidden costs associated with setting up and maintaining a JIT system must also be factored into the decision-making process when choosing between these two inventory models.

Under what circumstances is the Economic Order Quantity (EOQ) system more appropriate than the Just-In-Time (JIT) system, and what factors should businesses consider?

The Economic Order Quantity (EOQ) model is more appropriate when demand is stable and predictable, as it allows for the optimization of order quantities to minimize total costs. In contrast, the Just-In-Time (JIT) system is better suited for environments where demand is variable but supply chains are highly reliable, enabling frequent small orders to match actual consumption. Factors such as holding costs, ordering costs, and potential stock-out costs also play significant roles in determining the most suitable system.

How does the Economic Order Quantity (EOQ) model balance costs differently from how the Just-In-Time (JIT) system approaches cost management?

The Economic Order Quantity (EOQ) model balances ordering and holding expenses, whereas the Just-In-Time (JIT) system seeks to minimize or eliminate inventory to reduce carrying costs. EOQ orders a calculated amount of inventory to be used later, while JIT insists on minimizing inventory, which requires a highly responsive and reliable supply chain. This difference highlights fundamental approaches to inventory management and cost control.

What are the implications for a company's relationships with its suppliers when implementing a Just-In-Time (JIT) system compared to using the Economic Order Quantity (EOQ) model?

Implementing a Just-In-Time (JIT) system can significantly impact a company's relationship with its suppliers, necessitating closer coordination and reliable delivery schedules. Failure to maintain these tight relationships can lead to supply chain disruptions and increased stock-out costs, undermining the benefits of JIT. The Economic Order Quantity (EOQ) model, with its larger order quantities and fixed intervals, provides a buffer against such disruptions but may increase holding costs.