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You are the inventory manager for a large retail store. You face uncertain demand from customers...

You are the inventory manager for a large retail store. You face uncertain demand from customers and you buy products from an external sup- plier. Suppose you follow a “fixed-order quantity model”. What is the effect of increased lead time, decreased variability, increased ordering costs and decreased service level on the reorder point and on the order quantity? Write your answer in the table below by saying either Decreases (D), Increases (I), Stays the same (S), or, No answer - Insufficient information (NA). Fill in the blanks and fully justify your answers.

Reorder Point

Order Quantity

Decreased variability

Increased lead time

Increased ordering/setup cost

Decreased service level
business   Operations-Management   
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Answer #1

Order quantity (EOQ) = sqrt ( 2 * Annual usage * Order cost / Cost per unit)

Reorder quantity = Demand Rate * lead time

Going by these formulas, the answers are below:


Reorder PointOrder Quantity
Decreased variabilityDecreaseSame
Increased lead timeIncreaseSame
Increased ordering/setup costSameIncrease
Decreased service levelSameSame


answered by: ANURANJAN SARSAM
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