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Chapter 4: Q. 20-3PE (page 554)

Model most appropriate when a fixed amount must be purchased each time an order is placed.

Short Answer

Expert verified

Fixed-order quantity model is the most appropriate when a fixed amount must be purchased each time an order is placed.

Step by step solution

01

Definition of Fixed-order quantity model

Fixed-order quantity modelinitiates an order when the event of reaching a specified reorder level occurs. This event may happen at any time, looking at the demand for the items considered.

02

Explanation

The model that is the most appropriate when a fixed amount must be purchased each time an order is placed is described as the Fixed-order quantity model. Fixed–order quantity model is an inventory control model where the number requisitioned is fixed and therefore the actual ordering is triggered by inventory dropping to a specified level of inventory.

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Most popular questions from this chapter

Ordering exactly what is needed each period without regard to economic considerations.

Planning orders using a lot-for-lot (L4L) technique is commonly done because it is simple and intuitive. It also helps to minimize holding costs as you are only ordering what is needed when it is needed. So far it sounds like a good idea. Are there any disadvantages to this approach?

Develop a production plan and calculate the annual cost for a firm whose demand forecast is fall, 10,000; winter, 8,000; spring, 7,000; summer, 12,000. Inventory at the beginning of fall is 500 units. At the beginning of fall, you currently have 30 workers, but you plan to hire temporary workers at the beginning of summer and lay them off at the end of summer. In addition, you have negotiated with the union an option to use the regular workforce on overtime during winter or spring if overtime is necessary to prevent stock-outs at the end of those quarters. Overtime is not available during the fall. Relevant costs are hiring, \(100 for each temp; layoff, \)200 for each worker laid off; inventory holding, \(5 per unit-quarter; backorder, \)10 per unit; straight time, \(5 per hour; over time, \)8 per hour. Assume that the productivity is 0.5 units per worker hour, with eight hours per day and 60 days per season.

Is it true that, for an ERP system to be effective, it must be completely purchased from a single vendor?

Question:What is the term for forecasts used for making day-to-day decisions about meeting demand?
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