carrying cost in the
price. In this system, the buyer need not lock up the
capital and so the purchasing routine is reduced.
also significantly reduces obsolescence of inventory, lead
time and clerical efforts in paper work. Thus, the
seller can devote his marketing efforts to other customers
and production scheduling becomes easy.
In practice, the buyer is called upon to pay to the
supplier only when the material is delivered as per the
example, in India , say the Indian Oil Limited maintains its
petrol and diesel refilling stations inside the manufacturing
premises of many companies. As and when petrol or diesel is
required ,say in a lorry, IOL fills that and a coupon is
signed by the driver of the lorry. Buyer
makes the payment to IOL against that coupon.
Zero stock is becoming popular with the concepts such as
Just-in-time approach that is similar to it. However, in
situations where the supplier has to transport material from
one place to the other with a fair distance in between ,this
system needs careful handling as one never knows the road or
weather conditions. Normally, the system caters to those items
that are not very critical to manufacturing. It best suits the
situations where the output of one firm is the input of the
other firm with both the firms located nearby.