Discuss the fixed quantity order model of inventory control system with a suitable diagram.

The fixed quantity order model, also known as the continuous review or reorder point model, is a type of inventory control system used to manage inventory levels by replenishing stock whenever it falls below a predetermined reorder point. In this model, a fixed quantity of items is ordered each time a replenishment order is placed, regardless of the current inventory level. The key components of the fixed quantity order model include the reorder point, order quantity, lead time, and safety stock.

Key Components:

1. Reorder Point (ROP): The reorder point is the inventory level at which a replenishment order is triggered. It is calculated based on the expected demand during the lead time (the time it takes to receive an order after it is placed) and the desired level of safety stock to account for demand variability and lead time uncertainty.

2. Order Quantity (Q): The order quantity is the fixed amount of inventory that is ordered each time a replenishment order is placed. It is determined based on factors such as the EOQ (Economic Order Quantity), supplier constraints, and storage capacity considerations.

3. Lead Time (LT): Lead time is the time interval between placing an order and receiving the ordered items. It includes the time required for order processing, shipping, and delivery. Lead time variability is an important factor to consider when calculating the reorder point and safety stock.

4. Safety Stock: Safety stock is a buffer inventory maintained to protect against stockouts caused by variations in demand and lead time. It ensures that inventory is available to meet unexpected demand or delays in replenishment. The level of safety stock is determined based on factors such as demand variability, lead time variability, and service level targets.

Diagram:

In the diagram:

• The horizontal axis represents time, with the vertical line indicating the reorder point (ROP).
• The blue line represents the inventory level over time.
• Whenever the inventory level (blue line) drops below the reorder point (ROP), a replenishment order is triggered, indicated by the red vertical lines.
• The order quantity (Q) is represented by the difference between the maximum inventory level and the reorder point (ROP).

The fixed quantity order model ensures that inventory levels are continuously monitored, and replenishment orders are placed as needed to maintain adequate stock levels. This approach minimizes the risk of stockouts while optimizing inventory holding costs by ordering in fixed quantities at regular intervals.