A store has an annual demand (D) for 12000 for a product X. The store operates 300 days working year. Th delivery of an order takes 5 working days but has been known to take as long as 7 days. The store wants to calculate the reorder point without safety inventory and then with a two – days safety inventory.
To calculate the reorder point without safety inventory, we need to consider the lead time demand. The lead time is the time it takes for an order to be delivered after it has been placed.
First, we need to calculate the average daily demand (d) by dividing the annual demand by the number of working days in a year:
d = D / Number of working days per year
d = 12000 / 300
d = 40
Next, we need to calculate the lead time demand (L), which is the demand during the lead time (5 days):
L = d * Lead time
L = 40 * 5
L = 200
Finally, the reorder point without safety inventory is calculated by adding the average daily demand to the lead time demand:
Reorder Point = Average daily demand + Lead time demand
Reorder Point = d + L
Reorder Point = 40 + 200
Reorder Point = 240
Now let's calculate the reorder point with a two-day safety inventory. Safety inventory is kept to buffer against unexpected variations in demand or lead time.
To calculate the reorder point with safety inventory, we need to add the safety inventory to the reorder point without safety inventory:
Reorder Point with safety inventory = Reorder Point without safety inventory + Safety inventory level
Reorder Point with safety inventory = 240 + 2 (assuming a two-day safety inventory)
Reorder Point with safety inventory = 242
Therefore, the reorder point without safety inventory is 240, and the reorder point with a two-day safety inventory is 242.