Someone please help out what is the logic behind these formulas....
Reorder level= Maximum reorder period* maximum usage
Minimum level= Reorder leverl - ( normal usage * average reorder period)
Mihir
(Wealth Manager)
(5293 Points)
Replied 11 October 2011
Daily stock requirements = 500 units
lead time to order a fresh lot = 20 days (time between ordering and goods arriving)
recorder level = 500 x 20 = 10,000 (means when your inventory reaches at 10,000 units, you got to give order for the fresh lot because it will take 20 days to arrive. You don't want to be out of units when the new lot arrives since each day you are using 500 units)
normal requirement = 400 units
lead time to order a fresh lot = 12 average
minimum level = 10,000 - 400 x 12 = 5,200 units
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