Q,R, system
Explain what should happen to the order quantity in an order point (Q,R) system, and the time between orders in a periodic review (P,T) system, as the fixed cost per order (S) increases relative to other cost parameters. Explain the effect this will have on average inventory levels.
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Effects of Increase in Ordering Costs on Order Quantity,
Time between Orders, and Average Inventory Level
Costs relevant to a certain level of inventory include ordering cost and carrying costs. Ordering cost is the cost incurred every time an order is placed or simply, the cost per order transaction. Costs related to ordering may be transportation, and other costs related to the processing of orders. Carrying cost is expressed in a per unit basis. It is the cost of holding or carrying a unit of inventory as a result of maintenance, warehouse, insurance, obsolescence, and others that ...
Solution Summary
The solution explains what will happen the (Q,R) system, and explains the effect on the average inventory levels.