reorder point 2.pptx

8/10/2019 reorder point 2.pptx

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Selecting the Reorder Point withConstant Demand and Lead Time

On-hand

Inventory

TimeOrder

Placed

Inventory

Position

R

L L L


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Reorder Point

The reorder point is the inventory level atwhich a new order is placed.

Order must be made while there is enoughstock in place to cover demand during leadtime.

Formulation:

R = dL where d = demand rate per time period

L = lead time


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Terms used...

OH = ON HAND

SR = SOURCE REGISTER

IP = INVENTORY POSITION

BO = BACK ORDER


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Practice Problem with ConstantDemand and Lead Time

Demand for water bottles from aparticular concession stand is always 30

per day and the lead time is always 2days. The on hand inventory is currently15 bottles, and there is an incoming orderof 50 water bottles. If there are currently

no backorders, what is the inventoryposition? Should a new order be placed?


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Solution

R = Total demand during lead time = 30*2 =60 bottles

IP = OH + SRBO

= 15 + 500 = 65 bottles

65 > 60 so a new order is NOT needed


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Safety stock

It is the amount by which the reorder pointexceeds the expected (average) lead

time demand.

SS = zd( L)


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Cont..

Safety stock simply is inventory that is carried

to prevent stockouts

It is the stock held by a company in excess ofits requirement for the lead time. Companies

hold safety stock to guard against stock-out.

Safety stock is calculated using the following

formula: Safety Stock = (Maximum Daily Usage

Average Daily Usage) Lead Time


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how safety stock can reduce the

risk of a stockout during lead time(LT)


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Safety Stock and Service Level

Safety stock determines the chance of a stockoutduring lead time

The complement of this chance is called theservice level

Service level is defined as the probability of notincurring a stockout during any one lead time

The higher the probability inventory will be onhand, the more likely customer demand will be

met. Service level of 90% means there is a .90

probability that demand will be met during leadtime and .10 probability of a stockout.


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Safety Stock Example

Daily demand = 20 units

Lead time = 10 days

S.D. of lead time demand = 50units

Service level = 90%

Determine:1. Safety stock

2. Reorder point


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Safety Stock Solution

Step 1determine z

From appendix B: z =1.28

Step 2determine safety stock

Step 3determine reorder point


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Reorder Point with Variable

Demand


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Reorder Point with Variable Demand


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Reorder Point with Variable Demand

Example

If average daily demand is 30 yd per day,lead time is 10 andstandard deviation for daily demand is 5 yd per dayFor servicelevel of 95%.


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Reorder Point with Variable LeadTime

For constant demand and variable leadtime:


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Reorder Point with Variable LeadTime Example

Carpet Discount Store:


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Reorder PointVariable Demand and Lead Time

When both demand and lead time arevariable:


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Reorder PointVariable Demand and Lead TimeExample

Carpet Discount Store:

yds450.8150.8300

(30)(3)(3)(30)(5)(5)(10)(1.65)(30)(10)

22)(2)(

levelservice95%for1.65

days3

days10

dayperyd5

dayperyd30

dL

Ld

ZLdR

Z

L

L

d

d


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Practice Problem with VariableDemand and Constant Lead Time

The average weekly demand for waterbottles from a particular concession stand

is 80 bottles per week, and the constantlead time is 3 weeks. There is a standarddeviation of 10 bottles. If a 95% servicelevel is desired, what would the safety

stock and reorder point be?


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Solution

d = 80 bottlesd = 10 bottles

L = 3 weeks

dLT = d (L) = 10(3) = 17.32z = 1.64

Safety stock = zdLT = (1.64)(17.32)= 28.40 or 28 bottlesReorder Point = dL + safety stock

= (80)(3) + 28 = 268 bottles


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Formulas for Variable Demandand Variable Lead Time

Safety stock = zdLTR = dL + SS


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Practice Problem with VariableDemand and Lead Time

The average weekly demand for waterbottles from a particular concession stand

is 50 bottles per week, with a standarddeviation of 10 bottles. The average leadtime is 2 weeks, with a standard deviationof 1 week. If an 80% service level is

desired, what would the reorder point be?


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Solution

d = 50 bottlesd = 10 bottles

L = 2 weeksLT = 1 week

dLT = (L2d+ d22LT)= [(2)(10)2+ (50)2(1)2]

= 51.96 bottlesz = 0.84

Safety stock = zdLT = (0.84)(51.96)= 43.64 or 44 bottles

Reorder point = dL + SS= (50)(2) + 44=144 bottles


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How Much to Order in a PSystem

EXAMPLE

A distribution center has a backorder (BO)

for five 36-inch color TV sets. No inventory iscurrently on hand (OH), and now is the timeto review. How many should be reordered ifT= 400 and no receipts are scheduled (SR)?


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Solution

IP = OH + SR BO

= 0 + 05 =5 sets

TIP=400(5) = 405 sets

That is, 405 sets must be ordered to bring theinventory position up to Tsets.


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Finding Safety Stock and R

Records show that the demand fordishwasher detergent during the lead

time is normally distributed, with anaverage of 250boxes and

L= 22. What

safety stock should be carried for a 99percent cycle-service level? What is R?


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Solution

Safety stock (SS) = zL

= 2.33(22) = 51.3

= 51 boxes

Reorder point = DL+ SS

= 250+ 51

= 301 boxes

2.33 is the number of standarddeviations, z, to the right of

average demand during thelead time that places 99% of thearea under the curve to the leftof that point.


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Suppose that the demand during

lead time is normally distributed withan average of 85 and dLT

= 40. Findthe safety stock, and reorder point R,

for a 95 percent cycle-service level


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SolutionSafety stock = z

dLT= 1.645(40) = 65.8 or 66 units

R= Average demand during lead time + Safety stockR= 85 + 66 = 151 units Find the safety stock, and reorder point R, for an 85

percent cycle-service level.Safety stock = z

dLT

=1.04(40)= 41.6 or 42 units

R= Average demand during lead time + Safety stockR= 85 + 42

= 127 units


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Reorder point for variableDemand

For the ePaint Internet store ,we assumethat the daily demand for Ironcoat paint is

normally distributed with a average dailydemand of 30 gallons and a standarddeviation of 5 gallons of paint per day.Thelead time for receiving a new order ofpaint is 10 days.Determine the reorder

point and safety stock if the store wants aservice level of 95%--that is,theprobability of a stockot is 5%.


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Solution

d = 30 gallons per day

L = 10 days

= 5 gallons per day

For the service level,the value of z (from theormal table in appendix A) is 1.65.the safetystock is:

Safety Stock = zd( L)

= (1.65)(5)(10)

= 26.1 gallons


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Cont

The reorder point is computed as follows:

R = dL + safety stock

= 30(10) + 26.1

= 326.1 gallons


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Prepared by: Group no.11

reorder point 2.pptx

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