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ok sir
in course notes, there are no mention on ‘lead time’ and ‘buffer stock’s
what are these and importance for exam?and when we have lead time in a question how to deal with EOQ?
thanks!
They are mentioned in the revision notes on here.
Lead time has no affect on the EOQ calculation, it is only relevant for deciding at what level of inventory we place a new order.
(If it is taking 10 days to receive an order (the lead time) and we are selling on average 100 units a day, then we need to place an order when we have 1000 units left in inventory)
Buffer (or safety) inventory is simply holding extra units throughout the year just for safety. Again, it has no effect on the EOQ. The only effect is that if you are asked to calculate the total annual holding cost, then in addition to the cost of the average inventory (EOQ/2) you have the cost of holding the extra ‘buffer’ units.
(This has nothing to do with JIT – please start a new thread when it is a new topic 🙂 )
Plus, The assumption under EOQ is Optimum Order quantity with no buffer stock. The EOQ is delivered when Q=0. That’s why Average inventory=Q/2.
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