Question

Explain how the applications of inventory management for fixed quantities differ from those for fixed time periods. Give specific instances in which you would use a fixed time period model rather than a fixed quantity model. Provide real-world examples.

Answer 1

Fixed Quantity Model and Fixed Time Period Model

The main difference between them is when an order is placed for Fixed quantity model same quantity is ordered and for Fixed time period model the orders are placed at fixed time intervals.

FIXED QUANTITY MODEL.

Estimated Order Quantity is an example of the fixed-order-quantity model since the same quantity is ordered every time an order is placed. A firm might also use a fixed-order quantity when it is captive to packaging situations. If you were to walk into an office supply store and ask to buy 22 paper clips, chances are you would walk out with 100 paper clips. You were captive to the packaging requirements of paper clips, i.e., they come 100 to a box and you cannot purchase a partial box. It works the same way for other purchasing situations. A supplier may package their goods in certain quantities so that their customers must buy that quantity or a multiple of that quantity.

FIXED TIME PERIOD MODEL.

The fixed-order-interval model is used when orders have to be placed at fixed time intervals such as weekly, biweekly, or monthly. The lot size is dependent upon how much inventory is needed from the time of order until the next order must be placed (order cycle). This system requires periodic checks of inventory levels and is used by many retail firms such as drug stores and small grocery stores.

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