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Average usage of a raw material is 200kg per day
Average lead time is 5 days
Reoder level is 1600kg
Reorder quantity is 2800kg
What is the average raw material inventory?
Please please help and explain what formula to use.If stock is ordered when it falls to 1600 kg, then takes 5 days to arrive (lead time), stock will fall to 1600 – 5 x 200 = 600 units.
Think of them 600 units as always being there then in come 2800, the quantity reordered. These are gradually used so you can think of 2800/2 = 1400 of them there in average.
Overall, the average lecel of inventory will therefore be 600 + 1400 = 2000 units.
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