Under which conditions would a plant manager elect to use a fixed-order quantity model as opposed to a fixed-time period model? What are the disadvantages of using a fixed-time period ordering system?

A plant manager might elect to use a fixed-order quantity model, also known as the Economic Order Quantity (EOQ) model, under the following conditions:

1. **Constant Demand**: When demand for the product is relatively constant or predictable over time, the fixed-order quantity model can be very effective. 2. **Cost Optimization**: The manager aims to minimize the total cost of inventory, which includes holding costs (cost of keeping inventory), order costs (cost incurred while ordering), and shortage costs (cost of running out of stock). 3. **Lead Time**: The lead time for ordering and receiving the goods is known and relatively stable. 4. **No Capacity Restrictions**: There is sufficient storage space and no pressing capacity constraints that might require more frequent smaller orders. 5. **Independent Demand Items**: Items whose demand is independent (doesn’t depend on the demand for other items) are typically managed with the fixed-order quantity model. 6. **Per-Unit Costs Unaffected by Order Volume**: The cost per unit does not significantly decrease when larger quantities are ordered, which would make bulk purchasing at fixed intervals more attractive. 7. **Continuous Monitoring**: The inventory system can continuously monitor inventory levels, thus triggering orders at the right moment when inventory drops to a predefined reorder point.

Disadvantages of using a fixed-time period ordering system, also known as the Periodic Review System or Fixed-Interval Order System, include:

1. **Higher Safety Stock**: Since orders are only placed at the end of the review period, safety stock levels must be higher to accommodate the uncertainty in demand, leading to increased holding costs. 2. **Variable Order Sizes**: Orders are placed for variable quantities depending on the current inventory and the targeted level at the time of review, which may make it challenging to predict cash flow. 3. **Inconsistent Ordering Frequency**: If the demand fluctuates, the inventory might deplete sooner or stretch further than the fixed-time period, leading to potential stockouts or overstocking. 4. **Inefficient Response to Demand Changes**: A spike in demand can occur just after an order is placed, which would mean waiting until the next review period to adjust, risking a stockout. 5. **Review Costs**: As the review has to be performed at fixed intervals, it incurs additional labor costs, which are irrespective of whether an order is placed or not.