Ordering Point or Re-order Level related solved problems
Problem
From the
following information, you are required to determine:
(a) Ordering
Point or Re-order Level
(b) Minimum
Limit or Minimum Stock Level
(c) Maximum
Limit or Maximum Stock Level
(d) Danger Level
Maximum daily
requirement 800
units
Time required to
receive emergency
supplies 4 days
Average daily
requirement 700
units
Minimum daily
requirement 600
units
Time required
for fresh supply one month
(30
days)
Economic Order
Quantity 29000
units
Solution:
(a) Ordering
Point = Maximum daily requirement × lead time
Ordering Point
or Re-order Level = 800 × 30 = 24000 Units
(b) Minimum
Limit = Ordering Point – Average Consumption
Minimum Limit or
Level = 24000 – (700 × 30)
Minimum Limit or
Level = 24000 – 21000 = 3000 Units
(c) Maximum
Limit = Ordering Point – Minimum Consumption
while the
replacement order is outstanding + E.O.Q
Maximum Limit or
Maximum Stock Level =
24000 – (600 × 30) + 29000
Maximum Limit or
Maximum Stock Level =
24000 – 18000 + 29000 = 35000 Units
(d) Danger Level
= Average daily consumption × time required to receive emergency supply
Danger Level =
700 × 4 = 2800 Units
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