SCMT 3613 Class 15 - Reorder Point Model

reorder point model

An inventory system featured by: - multiple orders - fixed order quantity system = continuous review system - whenever IP is down to the reorder point (R), place an order for Q (fixed) units

service level

In-stock probability - the probability of not incurring a stockout during any one lead time - defines the magnitude of z

reorder point assumptions

- lead time demand is normally distributed - inventory position is reviewed continuously - no backorders allowed

deterministic models

Model where demand and lead time are known (constant) - Ex. EOQ model

stochastic models

Model where demand and lead time are treated as random variables (unknown, uncertain) - need to add safety stock - attention is focused on the distribution of demand during the lead time

optimal order quantity (Q)

Size of the order that is placed when inventory position is at or below level R in order to minimize total inventory costs.

D

The EOQ is: A. the order quantity that minimizes total annual inventory cost B. economic order quantity C. the order quantity that minimizes total holding costs and total ordering costs D. all of the above

reorder point (ROP)

The lowest inventory level at which a new order must be placed to avoid a stock-out.

False

True or False: EOQ model assumes varied demand and lead time.

True

When demand and lead time are constant, reorder point is the demand during lead time.

inventory position

equals on hand inventory + on order inventory - backorders.