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An organisation uses the EOQ model in respect of stores item.
Which of the following would cause the maximum inventory for the stores item to be exceeded?
A. increase in the supplier’s lead time
B. increase in usage by the organisation
C. the supplier delivers a smaller quantity than normal in a period
D. usage during lead time is below the minimum expected.The correct answer is D.
I have not been able to figure out the answer, can you please explain to me. Thank you sir.
Suppose you expect the usage during the lead time to be 100 units. You will therefore place a new order when you have 100 units left. So when the new order arrives the inventory was zero and so increases to the amount received from the order – this should be therefore the maximum inventory.
However, if it turns out that you use less during the lead time – suppose you only use 90 units – then there will still be 10 units left when the new order is received and so the maximum inventory will be 10 units more than it should have been.
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