Inventory and Capacity - Choose the best option that describes both accurately a

Question

Inventory and Capacity - Choose the best option that describes both accurately

a. Inventory allows for economies of scale to kick in.Inventory influences longer term capacity

b. Capacity is the maximum output rate. Inventory is required to cover only customer driven variations and uncertainties in the production process and supply chain

c. Capacity is the minimum output rate. Inventory is required to cover all kinds of variations and uncertainties in the production process and supply chain

d. Inventory allows for economies of scale to kick in.Inventory influences short term capacity

Explanation / Answer

The answer is option “d” - Inventory allows for economies of scale to kick in. Inventory influences short term capacity.

Inventory allows for economies of scale to kick in. Storing of inventory brings with itself economies of scale as the concept of storing one unit at a time at a place where consumer needs it and at a time when consumer needs it will be very costly. With bulk production and inventory cost advantages will occur due to inverse relationship between quantities of goods produced and per unit fixed costs.

Secondly, inventory will influence short term capacity as it will involve scheduling, labor shifts, and balancing resource capacities.

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