Higher lead time demand variance increases reorder point
level s, holding and total costs, but at the same time risk of stock-out is lesser and less affected by sudden changes in demand and supplier response and will have lower penalty costs.
To cope with these uncertain factors, the manufacturer uses an adaptive reorder point
policy to manage the retailer's inventory.
If the buyer orders quantity Q when the on-hand inventory reaches the reorder point
r, that is, it considers (Q, r) continuous review inventory model, to save holding cost of the buyer, the supplier produces mQ quantities, which will be delivered to the buyer m times in one production cycle.
According to the definition of (R, Q) inventory policies, a replenishment order with size Q will not be placed towards its supplier until the inventory position, expressed as the physical inventory plus the stock on order minus backorders, of one stock point is equal to or drops below its reorder point
Where, r = the reorder point
, d = the daily demand, and L = the lead time; in this case the number of days of lead time
TABLE 1--INITIAL ASSUMPTIONS OF THE MODEL Expected Optimal order Expected daily delivery time Meat quantity (kg) demand (kg) (days) Lamb 350.68 50.75 4.9 Beef 854.41 199.0 3.3 Pork 1350.93 490.0 2.1 Chicken 739.93 161.0 2.9 Expected demand during delivery time Safety stock Reorder point
Meat (kg) (kg) (kg) Lamb 248.68 101.5 350.17 Beef 656.7 398.0 1054.7 Pork 1029.0 980.0 2009.0 Chicken 466.9 322.0 788.9 TABLE 2.
When this drops below a certain point--either the reorder point
or minimum (MIN)--a planned order is triggered.
Case 2: When the on-hand inventory quantity at a warehouse reaches its reorder point
, the stock level at other regional warehouse is checked.
One possible approach is to head to the gas station at the end of day if the fuel drops below a quarter tank (this is similar to a reorder point
Document the incremental steps involved in your implementation or improvement program (for example, develop number and naming conventions, collect and enter item master records, establish reorder point
and order quantities).
In the (s, Q) system a fixed quantity Q is ordered whenever the inventory level drops to the reorder point
s or lower.
), we find that z = 0.17, so the safety stock is SS = z x [s.sub.1] = 0.17 x 18 = 3, the reorder point
is [r.sup.*] = [d.sub.1] + SS = 25 x 9 + 3 = 228 (that is to say, we have to order 580 units when the stock on hand is down to 228 units), and the expected number short on each order is g(z) x [s.sub.1] = 0.32 x 18 = 5.76 [approximately equal to] 6.