E&OE is trying to minimize its inventory costs, which are extremely high. The company has realized that it can achieve this by maintaining a near-zero inventory and producing more products only once it is ordered. Which of the following will be true for E&OE?

Question

Quizplus · Accepted Answer

If E&OE maintains a near-zero inventory and produces only once an order is received, it will have lower inventory-carrying costs. However, setup and order-processing costs will be high as each order will require its own setup. The order point will also be lower as E&OE will only produce once an order is received, and so the point at which they need to place an order will be closer to running out of inventory. Short production runs may be less expensive as E&OE will only produce what they need for each order. E&OE may also be able to reduce the average cost per unit by producing a long run as they can take advantage of economies of scale, but this is not specified in the question.

E&OE Is Trying to Minimize Its Inventory Costs, Which Are