Management Notes

Management Notes

Reference Notes for Management
A system that triggers ordering on a uniform time basis is called

A system that triggers ordering on a uniform time basis is called

by

A system that triggers ordering on a uniform time basis is called

Options:

  1. Fixed-quantity system.
  2. Reorder point system.
  3. Fixed-period system.
  4. EOQ.

The Correct Answer Is:

C. Fixed-period system.

Correct Answer Explanation: C. Fixed-period system.

A fixed-period system is a replenishment method where orders are placed at predetermined intervals, irrespective of inventory levels. This system triggers ordering on a uniform time basis, ensuring that stock is refilled at specific intervals, regardless of whether the inventory has reached a critical level.

For instance, a company might opt to reorder inventory every two weeks, regardless of whether the current stock is running low or not. This periodic approach helps in managing inventory and streamlining the ordering process by consolidating orders and reducing the need for constant monitoring.

A fixed-period system operates on a predetermined schedule, where orders are placed at fixed intervals, say weekly or monthly, irrespective of the current inventory levels. This system provides a structured approach to inventory management, allowing for batched orders and streamlining the procurement process.

By adhering to regular time-based ordering, companies can better plan and forecast their inventory needs, ensuring a consistent supply of goods without relying on inventory levels alone to trigger replenishment.

Why the other options are not correct:

Now, let’s delve into why the other options are not the correct answers:

A) Fixed-quantity system:

A fixed-quantity system, also known as the Economic Order Quantity (EOQ) model, involves replenishing inventory whenever it hits a specific level or reaches a reorder point.

Unlike the fixed-period system, where orders are placed at set time intervals, the fixed-quantity system triggers ordering when the inventory drops to a predetermined threshold.

Therefore, this method doesn’t involve ordering at uniform time intervals but rather when the inventory reaches a specific quantity, making it different from the concept described in the question.

B) Reorder point system:

The reorder point system is related to the fixed-quantity system. It involves determining a reorder point the inventory level at which a new order should be placed to replenish stock. When the inventory reaches this predetermined reorder point, an order is triggered to restock supplies.

Unlike the fixed-period system, the reorder point system doesn’t rely on fixed time intervals but on inventory levels, making it distinct from the uniform time-based ordering described in the question.

In the reorder point system, orders are placed when inventory levels hit a predetermined threshold, unlike the fixed-period system, which disregards inventory levels in favor of regular time-based ordering.

D) EOQ (Economic Order Quantity):

EOQ is a formula used to calculate the optimal order quantity that minimizes total inventory holding costs and ordering costs. It helps in determining the ideal quantity to order by considering factors like carrying costs, ordering costs, and demand rates.

However, EOQ doesn’t pertain directly to triggering orders based on uniform time intervals. Instead, it focuses on finding the most cost-effective quantity to order when restocking inventory.

A fixed-quantity system, known as the Economic Order Quantity (EOQ), triggers orders based on reaching a specific inventory threshold rather than uniform time intervals, focusing on optimizing order quantities for cost efficiency.

In summary, while options A, B, and D are all methods related to inventory management and ordering, they do not align with the concept of triggering orders on a uniform time basis, which is the defining characteristic of a fixed-period system.

The fixed-period system involves ordering at regular time intervals, regardless of the inventory level, thereby distinguishing it from the other methods mentioned in the question.

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