Question

Suppose that annual demand for a certain item has decreased dramatically this year, although the store that stocks this item has not updated its inventory policy, so the store is still using the same order size and reorder point established for that item when it was selling better in previous years. Which of the following could be expected to result from this situation?

I. The store will order the item more frequently this year.

II. There will probably be unsold stock of that item on the store’s shelves when each new order of that item arrives.

III.  The store will pay lower holding costs this year.

		I and III
		III only
		I only
		II only
		I, II and III

Answer 1

Taking into account that the Demand(D) has drastically diminished while the stock arrangement continues as before with same request measure (Q) and Reorder point (R) as prior.

This outcomes in a lessening in the recurrence of requesting for example the quantity of requests in a year.

Number of orders(Frequency of requesting) = D/Q (Annual Demand/Order Quantity)

As D diminishes and Q stays steady, recurrence of requesting diminishes from the above recipe. This implies the general requesting cost likewise is diminished.