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The reorder point is defined as the lead-time demand for an item. In cases of long lead times, the lead-time demand and thus the reorder point may exceed the economic order quantity Q*. In such cases, the inventory position will not equal the inventory on hand when an order is placed, and the reorder point may be expressed in terms of either the inventory position or the inventory on hand. Consider the economic order quantity model with D = 6,250, C = $40, C₁ = $2, and 250 working days per year. Identify the reorder point in terms of the inventory position and in terms of the inventory on hand for each of the following lead times. (a) 5 days

The reorder point is defined as the lead-time demand for an item. In cases of long lead times, the lead-time demand and thus the reorder point may exceed the economic order quantity Q*. In such cases, the inventory position will not equal the inventory on hand when an order is placed, and the reorder point may be expressed in terms of either the inventory position or the inventory on hand. Consider the economic order quantity model with D = 6,250, C = $40, C₁ = $2, and 250 working days per year. Identify the reorder point in terms of the inventory position and in terms of the inventory on hand for each of the following lead times. (a) 5 days

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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### Understanding Reorder Points in Inventory Management The reorder point is defined as the lead-time demand for an item. In cases of long lead times, the lead-time demand and thus the reorder point may exceed the economic order quantity \( Q^* \). This means that the inventory position will not equal the inventory on hand when an order is placed, and the reorder point can be expressed either in terms of the inventory position or the inventory on hand. Consider the economic order quantity model with: - Demand \( D = 6,250 \) - Ordering cost \( C_o = \$40 \) - Holding cost \( C_h = \$2 \) - 250 working days per year. Identify the reorder point in terms of the inventory position and in terms of inventory on hand for each of the following lead times: #### (a) 5 days - **Inventory position**: ______ - **Inventory on hand**: ______ #### (b) 15 days - **Inventory position**: ______ - **Inventory on hand**: ______ #### (c) 25 days - **Inventory position**: ______ - **Inventory on hand**: ______ #### (d) 45 days - **Inventory position**: ______ - **Inventory on hand**: ______ ### Explanation: In the context of inventory management, the reorder point ensures that an order is placed at the right time to avoid stockouts. By calculating the lead-time demand, businesses can ensure adequate inventory levels that meet future demand even during the replenishment period.
Transcribed Image Text:### Understanding Reorder Points in Inventory Management The reorder point is defined as the lead-time demand for an item. In cases of long lead times, the lead-time demand and thus the reorder point may exceed the economic order quantity \( Q^* \). This means that the inventory position will not equal the inventory on hand when an order is placed, and the reorder point can be expressed either in terms of the inventory position or the inventory on hand. Consider the economic order quantity model with: - Demand \( D = 6,250 \) - Ordering cost \( C_o = \$40 \) - Holding cost \( C_h = \$2 \) - 250 working days per year. Identify the reorder point in terms of the inventory position and in terms of inventory on hand for each of the following lead times: #### (a) 5 days - **Inventory position**: ______ - **Inventory on hand**: ______ #### (b) 15 days - **Inventory position**: ______ - **Inventory on hand**: ______ #### (c) 25 days - **Inventory position**: ______ - **Inventory on hand**: ______ #### (d) 45 days - **Inventory position**: ______ - **Inventory on hand**: ______ ### Explanation: In the context of inventory management, the reorder point ensures that an order is placed at the right time to avoid stockouts. By calculating the lead-time demand, businesses can ensure adequate inventory levels that meet future demand even during the replenishment period.
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