The Fixed Order Quantity is an inventory control system that allows for maximum and minimum inventory levels to be fixed. When the inventory level hits the auto-set reorder point or the minimum stock level, the maximum and fixed amount of inventory can be replenished.
In other words, an auto-reorders point is connected to the system’s pre-fixed amount of inventory, and as soon as the inventory level reaches the minimum set-point, the point immediately places an order with the supplier for the maximum stock capacity. The maximum and minimum stock levels must be established by the company based on storage space and sales trends.
Many businesses utilize the fixed order quantity system because it reduces reorder errors, effectively manages storage space, and avoids wasteful blocking of funds that may be used elsewhere. This approach also makes sure that inventory items that are currently being used in production get replenished on a regular basis.
The Fixed Order Quantity technique makes the assumption that all the variables are well known and constant. Sales, unit costs, holding costs, lead times, stock out costs, etc. are a few examples of such factors. The strategy is often used by businesses and produces outstanding outcomes, although this assumption could not hold true in real-life scenarios.
