Which statement accurately describes par stock, min-max, and EOQ, and when to use each?

Which statement accurately describes par stock, min-max, and EOQ, and when to use each?

• A. Par stock fixes safety stock; min-max eliminates safety stock; EOQ is about supplier relationships.
• B. Par stock is target quantity to keep on hand; min-max defines reorder threshold and max level; EOQ is a mathematical model to minimize total holding and ordering costs. Use par/min-max for day-to-day control; EOQ for large-scale purchasing with stable demand and fixed costs.
• C. Par stock is only for raw materials; min-max is for finished goods; EOQ is for service levels.
• D. Par stock uses complex math; min-max uses no math; EOQ ignores costs.

Answer: (B)

Understanding how par stock, min-max, and EOQ govern when to reorder and how much to order helps you manage costs and stock levels effectively. Par stock is the target quantity you want to have on hand so you can meet expected demand until the next replenishment. Min-max sets two things: a minimum level that triggers a reorder and a maximum level to prevent overstocking. EOQ, the economic order quantity, is a mathematical model that finds the order size that minimizes the total costs of holding inventory and placing orders, assuming stable demand and known costs. The practical use matches this: use par stock or min-max for everyday, hands-on control to keep operations running smoothly; use EOQ when planning large purchases with stable demand and clear ordering and holding costs, to optimize overall cost. Other options misstate the concepts. Par stock isn’t simply safety stock; min-max isn’t about eliminating safety stock, and EOQ isn’t primarily about supplier relationships.

Understanding how par stock, min-max, and EOQ govern when to reorder and how much to order helps you manage costs and stock levels effectively. Par stock is the target quantity you want to have on hand so you can meet expected demand until the next replenishment. Min-max sets two things: a minimum level that triggers a reorder and a maximum level to prevent overstocking. EOQ, the economic order quantity, is a mathematical model that finds the order size that minimizes the total costs of holding inventory and placing orders, assuming stable demand and known costs. The practical use matches this: use par stock or min-max for everyday, hands-on control to keep operations running smoothly; use EOQ when planning large purchases with stable demand and clear ordering and holding costs, to optimize overall cost.

Other options misstate the concepts. Par stock isn’t simply safety stock; min-max isn’t about eliminating safety stock, and EOQ isn’t primarily about supplier relationships.