Question

Explain why you agree or disagree with the following statements.

If I were to supply my kitchen with fresh food, I can use the fixed-order quantity model because , like most people, I only go to the grocery store when the supply is low and since the number of people who consume the food stays the same, I would purchase the same amount. On the other hand, if I were to obtain a daily newspaper, I would use the fixed- time period model because it would only be a one-time purchase. Lastly, if I were to buy gas for my car, I would use the fixed-order quantity model because it is refilled when or before it hits empty. The usage of the gas varies so the time to refill it also differs.

With so much productive capacity and room for expansion in the United States, a company based in the United States would choose to purchase items from a foreign firm for several reasons. Products from foreign firms are generally more affordable but are of high quality. Labor wages associated with producing these products are much lower in foreign countries than in the United States. Lower costs help the company generate higher revenues. Also, in some countries, laws and regulations are less strict than in the United States.

However, purchasing items from a foreign firm also has disadvantages. Purchasing items from a foreign firm involves higher transportation and tax-related costs. Language barrier and cultural differences are also present in business operations in a foreign market.

Answer 1

Statement 1

"If I were to supply my kitchen with fresh food, I can use the fixed-order quantity model because , like most people, I only go to the grocery store when the supply is low and since the number of people who consume the food stays the same, I would purchase the same amount. On the other hand, if I were to obtain a daily newspaper, I would use the fixed- time period model because it would only be a one-time purchase. Lastly, if I were to buy gas for my car, I would use the fixed-order quantity model because it is refilled when or before it hits empty. The usage of the gas varies so the time to refill it also differs."

I would agree with this statement because it makes a choice of the model based on the nature of the requirement. In case of groceries there is a usual consumption rate and a trip to the grocery store is made periodically to ensure adequate inventory till the next trip which is usually fixed as stated. In case of the daily newspaper it needs to be supplied daily and timing is more critical. Again with a car and buying gas for it is very similar to groceries, we have a fixed capacity for the fuel tank which will also limit the capacity to be carried as inventory, and the gas is consumed only when the vehicle is used. Hence a fixed quantity model works.

Statement 2

With so much productive capacity and room for expansion in the United States, a company based in the United States would choose to purchase items from a foreign firm for several reasons. Products from foreign firms are generally more affordable but are of high quality. Labor wages associated with producing these products are much lower in foreign countries than in the United States. Lower costs help the company generate higher revenues. Also, in some countries, laws and regulations are less strict than in the United States.

However, purchasing items from a foreign firm also has disadvantages. Purchasing items from a foreign firm involves higher transportation and tax-related costs. Language barrier and cultural differences are also present in business operations in a foreign market.

I would broadly agree with this staement as well as it clearly marks out the various considerations in purchasing from within the country versus purchasing from abroad. Quality and cost are always the primary considerations for organizations and if both are strong then the choice to purchase from abroad makes sense. The lower costs in some countries can be traced back to lower wages. Some of the savings of these costs could however be offset by logistics, transportation and customs costs. There will also be added complexity of administration specially with foreign vendors and one would have to accommodate for cultural differences as well.