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Hello tutor,
I have a question relating to the formula of the average inventory held: Average inventory held = EOQ/2 + buffer inventory. But there is also another formula: verage inventory held = EOQ/2. These make me confused as in some cases it works with the first formula; in other cases, only the second. How can we make sense between these two formula?
Thank you tutor!
The buffer (or safety) inventory is extra inventory held throughout the year to cover against uncertainty in the lead times. In a perfect world there would be no uncertainty and therefore the buffer inventory would be zero (so the second formula).
Whether or not it is relevant in an exam question depends on the wording of the question as to whether or not there is any buffer inventory held.
Have you watched my free lectures on this?
Thank you tutor for your explaination. I will watch your lecture on this issue.
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