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 only once a product is ordered. Which of the following will be true for E&OE?

Question

Quizplus · Accepted Answer

Maintaining near-zero inventory and producing only once a product is ordered means that order-processing costs will be lower than inventory-carrying costs. The order point will also be low since production only occurs after an order is received. Short production runs will not necessarily be more expensive than longer ones, and producing a long run may not necessarily reduce the average cost per unit. Setup and order-processing costs will be incurred, but these are still likely to be lower than the cost of carrying inventory.

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