Supply Chain Inventory

CHALLENGES EXPECTED FROM USING A REORDER POINT SYSTEM

Many items may reach reorder level at the same time which will result in overloading the reordering system.

Items come up for reordering in a random form so that there is no sequence whatsoever

In certain circumstances such as variable demand, the EOQ calculation might not be accurate.

Since the Package Printers use the reorder point control system that runs its processes using the EOQ which bases on assumption as it assumes a steady demand of a business' product and immediate availability of items to be restocked. It does not account for seasonal or economic fluctuations. It assumes fixed costs of inventory units, ordering charges and holding charges.

When Package Printers apply EOQ principles, they assume that each unit has a cost for warehousing and holding it until you order again. This allows them to predict their inventory expenses. In practice, they will sell some of the inventory much sooner than the reorder date, so they do not actually incur the projected holding cost. They could be showing less profit for your company because they assume the maximum holding expense for each unit of inventory. One way to rectify this is to discount their holding cost to allow for the fact that not all units are being held for the same amount of time.

Because the EOQ method has their order the same amount each time, they do not get to take advantage of quantity discounts and specials your suppliers may offer. If Package Printers want the discount, they will have to temporarily suspend their EOQ method and watch inventory levels until it is time to order again. Presumably, since they ordered more to get the discount, it will take them longer to use up their inventory. This means they will have to monitor inventory to decide when to re-order.