SMG OM 323 Chapter Notes - Chapter 13: Safety Stock, Stockout, Service Level

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13 Jun 2018

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Appendix C: Working with the Normal Distribution, pp. 716-720

Review: Solved Problems 4, 5, 6, 8

Submit: Text Problems 19, 23, 36. Submit via Connect

Ch. 13: Inventory Management, pp. 573-577 & 580-582 (stop before

“Discrete Stocking Levels”)

13.6 Reorder Point Ordering

● Reorder point ROP: when the quantity on hand of an item drops to this amount, the item

is reordered

● Four determinants of the reorder point quantity:

1. The rate of demand - usually based on a forecast

2. The lead time

3. The extent of demand and or lead time variability

4. The degree of stockout risk acceptable to management

ROP = d x LT

d = demand rate (units per day or week)

LT = lead time in days or weeks

● Safety stock: stock that is held in excess of expected demand due to variable demand

and or lead time

ROP = expected demand during lead time + safety stock

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