ABC Company buys widgets from XYZ Company. ABC places orders using economic orde
ID: 444221 • Letter: A
Question
ABC Company buys widgets from XYZ Company. ABC places orders using economic order quantity formula. ABC Company recently retained a consultant to improve its operations, and this has resulted in an increase in the order lead time, but it has reduced the variation in the lead time in getting the widgets from XYZ. The consultant was also able to reduce the cost of placing the orders. Answer the following (along with a brief explanation of a line or two for each)-
What is the effect on order size?
What is the effect on safety stock?
What is the effect on annual costs (consisting of annual order costs, annual inventory holding costs and annual purchase costs)?
Explanation / Answer
the order size will be increases than earlier level.
the safety stock will be increase in quantity at this level of orders.
the total ordering costs will be minimizes, but inventory holding costs will be increase a little and the purchase costs also decreases. the total cost will be decreases than earlier one.