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Hi John. Please assist me with the question below. I was solving the interim question in the F2 Kaplan paper.
A component has a reorder quantity of of 2000 units. The demand varies between 100to 500 a week, lead time is 2 weeks.
Calculate the average inventory level if stock outs are to be avoided,
I got 1000 because it should just be eoq over 2. But the marking scheme says 1400 units. Help?
If it were not for the lead time, then the average inventory would indeed be 1,000.
However, in order to avoid ever running out of inventory (stock outs) they need to place orders when they still have 1,000 left in inventory (2 weeks x 500).
However the average demand over the lead time is only 600 units (2 weeks x (100+500)/2) and so on average they will always have 400 units (1000 – 600) more than they actually need.So the average inventory is the 1,000 (EOQ/s) + 400 = 1,400 units.
(If you are still unsure then the revision notes/lectures on here go through it)
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