(1) continuous review model (EOQ), (2) periodic review model, and (3) newsvendor
ID: 392365 • Letter: #
Question
(1) continuous review model (EOQ), (2) periodic review model, and (3) newsvendor model. Each of these models is appropriate for different types of products and different product life cycles. When applying each of the three methods, you calculate order quantity differently, focus on different costs and compute different metrics (e.g., reorder point, target level, service level, critical fractile). In this problem I would like you to do the following:
1) For each of the three inventory management models, describe a hypothetical situation in which that model is appropriate. This means, for each of the 3 models:
a) Name a specific business, industry or product for which you think that model is appropriate
b) Given a 1-2 sentence justification of why you think that business/industry/product fits with the stated model
c) For that business, industry or product, tell me what needs to be calculated based on the model you selected (a single shot order quantity, a target replenishment level, an order quantity that is repeated, a re-order point, a service level, safety stock, etc.) Basically, what I am asking is for you to describe how each of the models function by citing what information is relevant and what decisions need to be made in each. Please keep your descriptions of each model separate and address one model at a time. (Try to keep your answers between 3 and 10 sentences for each model: a total of 9 to 30 sentences).
Explanation / Answer
Inventrory review is important for any buisness , because you need to know and check how much stock you have for when or what to reorder. because of keep the eye on the stock you need to recheck your quantity. There are three types of model which helps to determine value of stock which are as following
1.Continuous review model
2. Perodic review model
3.New vendor model
Continuous review model (EOQ) : A Continuous review model defined a continual record of the inventory level for each item , that is present in stock so stock can be maintained and whenever stock reduced so it can be reorder. basically inventory review model track a record with the help of computer . This process is time consuming and costly but more effective than any other model. for e.g. :
this model is commonly use in supermarket, where the size of buisness is big and stock is also so with the help of computer system and bar scanner track all the record of stock if any fall into a stock so it can be reorder. so this model is appropriate for big buisness and supermarket type of buisnes where regualar check of stock is required.
2.Periodic review model : Periodic review model refers to track the record at periodically basis i.e fixed time period , in this the quantity of order is varible its according to how much we required a stock but time is fixed or period of order is fixed. In this inventory levels start at some restocking level, R. so in this review of inventory is fixed at regular time interval (ex- 3 days, 2 weeks, 1 month etc).
so basically this type of model review used in retailer shop or any store rooms where stock review on fixed time period and if inventory fall so its reorder the quantity.
3).new vendor model : New inventory model is a mathematical model in operation management used to determine optimum level of inventory means where the demand and supply is equal , but it is diificult to decide it because demand is uncertain, this is not be fixed . this types of model used in perishable product or item used on daily basis .for e.g. a milk supplier faced this sitution like who dont know how many packets of milk to stock to meet the uncertain demand and knowing the fact if milk packets is not sold on same day, then its worthless.
a). Inventory model used in big oraganization because it is based on computer or check the record via computer each and every single product avaliable in stock either its small or large product like supermarket where every kind of item is sell so this model is good for this types of organization.
b) Periodic review model is used for midium size of buisness like storeroom or shop where the stock review after a fixed time interval like 3 days, 2 weeks , 1 months etc in this time is fixed and quantity of order is variable according to time and demand .
c). New vendor model : this types of model is used in the buisness which deal on pershiable items , the good used on daily basis so demand is uncertain , we require to calculate mathematical equation to know the how much stock is required in a day because if it it is not sold in a day so its totally wastege of product.
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