Question

Describe the strengths and weakness of Single Period inventory (SPI)

Answer 1

Single Period Inventory:-

The single period inventory in operations management is a business model faced by organizations that order seasonal or one-time products. The timing calculation is very important here since, product has no value after the time when it was needed. This clearly means over ordering or under ordering will generate extra costs.

This is generally termed as “Newsboy” model as well. A newsboy sells papers to passers-by every day & he should have the approx. number in hand one day prior, so that exact number of newspapers can be ordered the day before. He has only single chance to order, as post that day that newspaper will have no value. So, if he orders more than what is purchased, he will suffer loss of the unsold papers & if he orders few then he will have loss on profits, customer’s disappointment. Getting correct quantity is the main way of making the most of the profit.

Strengths:-

1. The main objective of SPI is, to balance the gross profit of sale of a unit with the cost incurred when product is sold after its primary selling period. Basically balancing the cost of inventory overstocks & under stocks.
2. If conducted in calculated & timely manner, this could be the best inventory method for perishables items & other items which have limited life.
3. There is no/less holding cost involved if forecast analyses is done properly, the product will arrive & will be sold in a short duration.
4. Customer service are satisfactory as products are periodic, they are ordered & sold quickly.

Weakness:-

1. A little miscalculation in terms of forecasting of future analysis, SPI can lead to losses. If calculation is not done properly as stated in newsboy example, it could lead to business loss.
2. If Perishable items are not sold within their deadline then they incur a total loss. These cannot even be sold at discounted pricing since these products become expired & cannot be used anymore.
3. Under ordering can limit the profits & also annoy the customers. This will again impact the customers.
4. Does not hold good for the products with small shelf-life, since the products are considered of no value after a certain time & if not sold within that period, again the space & cost will be effected.