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Hi Mr. John
I have question about reorder level. We all know that reorder level= usage x lead time(max). But in the open tuition’s lectures I found a question about reorder level which was calculated like that lead time x usage +safety inventory. why did they add safety inventory to the formula?Because usage x lead time will leave enough to last out until the next order arrives. Immediately before the next order arrives, the level will have dropped to zero.
If they are keeping buffer/safety inventory, then they want the minimum level to be the safety inventory and so they need to order when they have that much extra left in inventory.
I understood your answer that we have to add this minumum level of inventory because out stocks might be finished untill new ordering. But why in the some examples they added safety inventory whereas others didn’t. By the way What is the correct formula of reorder level? Max lead time x max usage. Is that? Or
Max lead time x max usage + buffer inventory?I would need to see the other questions in order to explain – it depends what the wording of the question is.
The reorder level will usually be max lead time x max usage, because usually there is no mention of buffer inventory. If there is buffer inventory then that needs to be added on.
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