Question

Based on your Learning Team's earlier work, your department's forecasting recommendation has made vast improvements to the Hangzhou, China on-time deliveries. However, the company president has concerns the resin inventory levels are not ordered in the most optimal quantities. The purchasing department needs your team's help on when and how much to order.

Identify and present strategies of when to order (re-order points - ROP)

Answer 1

To identify when and how much to order or the re-order points in inventory management we should to know two factors. They are the time of delivery of stock and the minimum stock required to protect from the shortage in demand fluctuation. The delivery time stock is the time taken for an order to reach the inventory from when it is ordered. And the minimum stock required for emergency times is called the safety stock. Determining both these, one can understand what the re-order points should be. Hence to determine the re-order points these two factors have to be determined.

To determine the delivery time stock the replenishment system's efficiency has to be determined. More the efficiency, less the need for delivery time stock. To determine the safety stock, the risk of stock out and the increased cost of holding extra inventory will have to be traded off and hat minimum number will determine the safety stock