8.7. Distinguish between a fixed order quantity and fixed order interval system. Which one generally requires more safety stock? Why?
In a fixed order quantity system, the order size stays constant (although the time interval between orders may vary); in a fixed order interval system, the time interval is constant (although the order size may vary). The infrequency of inventory monitoring makes a fixed order interval system more susceptible to stockouts and thus there is likely to be higher levels of safety stock in a fixed order interval system.
8.8. Explain the logic of the EOQ model.
The logic of the EOQ model is as follows: determining an order quantity requires a company to balance two costs; the costs of carrying the inventory and the costs of ordering it. Inventory carrying costs are in direct proportion to order size; that is, the larger the order, the greater the inventory carrying costs. Ordering costs, by contrast, tend to decline with order size but not in a linear fashion. The EOQ attempts to find the point (quantity) at which ordering costs equals carrying costs.
8.17. How do the consequences of JIT go far beyond inventory management?
The consequences of JIT actually go far beyond inventory management and JIT has important implications for supply chain efficiency. One implication is that suppliers must deliver high quality materials to the production line, in part because of JIT’s emphasis on low (no) safety stock. Moreover, because customers in a JIT system tend to place smaller, more frequent orders, it is imperative that suppliers’ order systems are capable of handling an increased number of orders in an error-free fashion. Smaller, more frequent orders, coupled with close supplier location, tend to favor truck as a mode of transportation and this means that production and distribution facilities should be designed to support truck shipments.
9.8. Discuss the advantages and disadvantages of locating...