Smart Products
Assume a 365 day year.

Smart Products buys 300,000 units of a crucial input per year from a supplier that fulfills its orders within two days of receiving them. Smart Products submits its orders directly to the supplier through a web interface, so its lead time is the supplier’s two day turnaround time. Each order costs Smart Products about $500 to place, while carrying costs are about $60 per unit per year. The company seeks to maintain a five day usage level in a safety stock.

-Refer to Smart Products.If management determines that a four day safety stock is appropriate for this input,what is the new reorder point?

Question

Smart Products
Assume a 365 day year.

Smart Products buys 300,000 units of a crucial input per year from a supplier that fulfills its orders within two days of receiving them. Smart Products submits its orders directly to the supplier through a web interface, so its lead time is the supplier’s two day turnaround time. Each order costs Smart Products about $500 to place, while carrying costs are about $60 per unit per year. The company seeks to maintain a five day usage level in a safety stock.

-Refer to Smart Products.If management determines that a four day safety stock is appropriate for this input,what is the new reorder point?

Quizplus · Accepted Answer

The reorder point formula is: Reorder Point = (Daily Usage Rate x Lead Time) + Safety Stock. Daily Usage Rate = 300,000 units / 365 days = 822 units per day. For a four day safety stock: Safety Stock = 822 units/day * 4 days = 3288 units. Lead Time = 2 days, so Lead Time Demand = 822 units/day * 2 days = 1644 units. Thus, Reorder Point = 1644 units (Lead Time Demand) + 3288 units (Safety Stock) = 4932 units.

Smart Products Assume a 365 Day Year