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A company uses 30 units of an item per day and the order lead time is 5 days. What is the re-order point?
- a)150 units
- b)650 units
- c)200 units
- d)890 units
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
A company uses 30 units of an item per day and the order lead time is ...
Re-order Point Calculation
To calculate the re-order point, we need to consider the daily usage of the item and the lead time for ordering and receiving the item. The re-order point is the level at which a new order should be placed to replenish the inventory in time.
Given:
- Daily usage of the item: 30 units
- Order lead time: 5 days
Step 1: Calculate the lead time demand
The lead time demand is the total quantity of the item needed during the lead time. It can be calculated by multiplying the daily usage by the lead time.
Lead time demand = Daily usage * Lead time
Lead time demand = 30 units/day * 5 days
Lead time demand = 150 units
Step 2: Calculate the safety stock
Safety stock is a buffer quantity kept to account for uncertainties in demand or lead time. In this case, let's assume no safety stock is maintained.
Safety stock = 0 units
Step 3: Calculate the re-order point
The re-order point is the sum of lead time demand and safety stock.
Re-order point = Lead time demand + Safety stock
Re-order point = 150 units + 0 units
Re-order point = 150 units
Therefore, the re-order point in this case is 150 units.
Conclusion
Option A, which states 450 units, is incorrect. The correct re-order point is 150 units, as calculated above.
To calculate the re-order point, we need to consider the daily usage of the item and the lead time for ordering and receiving the item. The re-order point is the level at which a new order should be placed to replenish the inventory in time.
Given:
- Daily usage of the item: 30 units
- Order lead time: 5 days
Step 1: Calculate the lead time demand
The lead time demand is the total quantity of the item needed during the lead time. It can be calculated by multiplying the daily usage by the lead time.
Lead time demand = Daily usage * Lead time
Lead time demand = 30 units/day * 5 days
Lead time demand = 150 units
Step 2: Calculate the safety stock
Safety stock is a buffer quantity kept to account for uncertainties in demand or lead time. In this case, let's assume no safety stock is maintained.
Safety stock = 0 units
Step 3: Calculate the re-order point
The re-order point is the sum of lead time demand and safety stock.
Re-order point = Lead time demand + Safety stock
Re-order point = 150 units + 0 units
Re-order point = 150 units
Therefore, the re-order point in this case is 150 units.
Conclusion
Option A, which states 450 units, is incorrect. The correct re-order point is 150 units, as calculated above.
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Community Answer
A company uses 30 units of an item per day and the order lead time is ...
The basic formula for the reorder point is to multiply the average daily usage rate for an inventory item by the lead time in days to replenish it.
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