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Ques: A component has a reorder quantity of 2,000 units. The demand varies between 100 units and 500 units per week. The lead time is steady at two weeks.
What is the average inventory level if stockouts are to be avoided?
Ans: 1400units.
sir why is the answer? can you explain the method.
**Also sir wanted to ask would our answer have been 1400 units only even if they question was simply ‘find the average inventory level’?
To avoid stockout they need to reorder when they have 2 x 500 = 1,000 units in inventory.
Therefore the minimum inventory level is 0 (when demand over the lead-time was 1,000), and the maximum inventory level is 2,800 (when demand over the lead-time was 2 x 100 = 200). Therefore the average inventory is 2,800 / 2 = 1,400 units.
The answer would still be 1,400 because you would assume that they wished to avoid stockouts.
This is all explained in my free lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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