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ACCA MA · Guided practice (Show me how)

Chapter 6: Inventory Control

Re-order level, safety inventory and the maximum inventory level

The re-order level is the level of inventory at which a new order is placed. The lead time is the time between placing an order and the delivery arriving.

Part (a) - one company. This company has a demand from customers of 100 units per week. The lead time is 5 weeks. In the second part of (a) the company also decides to hold safety inventory of 100 units.

Part (b) - a DIFFERENT company. Here demand from customers is uncertain and is between 70 and 120 units per week. The lead time is also uncertain and is between 3 and 4 weeks. The company orders 1,000 units each time.

  1. (a) First company - demand and lead time both certain

    Calculate the first company's re-order level with no safety inventory, and its re-order level with safety inventory of 100 units.

  2. (b) A different company - demand and lead time both uncertain

    Calculate the second company's re-order level so that it never runs out of inventory, and its maximum inventory level.

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