Acompany works 320 days per year and has an annual demand of 2080 units of product desires to set an reorder point that will cover demand during lead time. if the lead time is 4 working days, what should the reorder point be?

reorder point= 39 units

Explanation:

given data:

Annual demand = 2240 units.

No of days = 320

lead time is 4 working days

As we know,

Reorder point= Lead time demand + Safety stock

Lead time demand = Average daily usage * lead time

Average daily usage = \frac{Annual demand}{No of days operating in year }

average  Daily usage = \frac{2080}{320}= 6.5 units per day.

Lead time demand = 6.5* 4 = 26 units.

Safety stock = 2 days of average demand

= 2*6.5 = 13 units.

Hence reorder point= 26 + 13= 39 units.