A producer orders inventory from a supplier who can start delivery in 5 days tim

Question

A producer orders inventory from a supplier who can start delivery in 5 days time at a rate of 50 units per day. Daily usage of item is 20 units and the producer has decided to order 800 units. Calculate the re-order time and the re-order stock level. A producer orders inventory from a supplier who can start delivery in 5 days time at a rate of 50 units per day. Daily usage of item is 20 units and the producer has decided to order 800 units. Calculate the re-order time and the re-order stock level.

Explanation / Answer

Answer:

In this case, Initial order (Number of units ordered by producer) Q = 800 units

Daily usage of units (Usage rate) u= 20 units/day

Therefore number of days after which stock will be exhausted = 800/20 = 40 days

lead time m = 5 days

Replenishment rate r = 50 units per day

Stock out time = Q/u = 800/20 = 40 days

Since the supplier needs 5days to deliver, therefore the ordering should be done on t = Q/u - m = (40-5) = 35 days

Therefore reorder must be placed 35 days after the first order

Reorder stock level = m*u = lead time * usage rate = 5*20 = 100 units

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