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A large store selling office furniture stocks a popular chair for which the following information
is available:
Annual demand: 4,000 chairs
Maximum inventory: 75 chairs
Minimum inventory: 20 chairs
Lead time: 5 days
Re?order quantity: 100 chairsWhat is the average inventory level?
A 75 chairs
B 70 chairs
C 55 chairs
D 47 chairsThe answer provided: Average inventory = ROQ/2 + minimum inventory
= 100/2 + 20 = 70 chairsSir, I understand the equation but what confuses me is the maximum inventory. Where did the 75 chairs come from and why it is irrelevant to solving this question?
If you have copied the entire question correctly, then it makes no sense at all. They are obviously ordering in advance (because of the lead time) but if they place orders such that the minimum inventory is 20 then when the new order arrives the inventory level will go to 120. In that case the average inventory will indeed be (120 + 20) / 2 = 70 chairs. However in that case the maximum inventory will be 120 chairs and not 75 🙂
I pondered over their maximum inventory thing for a long time, and my thought always ended up with 120 chairs, just as you explained to me. Huge relief to hear from you! Thank you!
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