The reorder point [see equation(13.6)] is defined as the lead-time demand for an item. In cases of long lead times, the lead-time demand and thus the reorder point may exceed the economic order quantity (EOQ). In such cases, the inventory position will not equal the inventory on hand when an order is placed, and the reorder point may be expressed in terms of either the inventory position or the inventory on hand. Consider the EOQ model with D=5000, Co=$32, Ch=$2, and 250 working days per year. Discuss the reorder point in terms of the inventory position and in terms of the inventory on hand for each of the following lead times: a) 5days b) 15 days c) 25 days d) 45 days
As we know from the book r= dm
r = reorder point; d = demand per day; m = lead time for new order in days
Given
- Annual demand (D) = 5000
The value of Q* that minimize the total yearly cost is √ 2DCo/Ch
Q* = √ (2 * 5000 * 32/2) = 400
The yearly demand (D) = 5000/ year
Working days= 250days /year
The demand per day (d) = D/250=5000/250 = 20/ day
a) 5days 20 x 5 = 100
b) 15 days 20 x 15 = 300
c) 25 days 20 x 25 = 500
d) 45 days 20 x 45 = 900