Question

Which inventory model would you use for the following situation? Poutine Paradise food truck is ordering compostable plateware to serve with its poutine dishes. The plateware is sourced from a vendor across the country with a significant lead time. Due to the limited storage capabilities for this small company, the holding cost is significant. Poutine Paradise just opened this week so demand rate is relatively unknown, although they have calculated demand estimates. The vendor charges a fixed cost to place orders.

Newsvendor

Q,R Model

Economic Order Quantity

Answer 1

As the problem is determined by limited storage space and the Vendor charges fixed price and there is the presence of uncertainty regarding the demand hence the Q,R model will be useful in this case. The In Q,R model is a stochastic inventory control model in which Q stands for reorder quantity, and R stands for recorder level.

In this case, inventory space is limited with the company, the price of compostable plate ware has been kept fixed by the seller; the time for an order to reach from the seller is high i.e. high lead time so the decision of purchase is of the specific time period and there is uncertainty about the amount of demand and hence the Q,R model is suitable for making optimal capacity decisions in this scenario.