Opposite to above explained approach, this approach will result with lower reorder point
level s, holding and total costs, but this approach is prone to risk.
where [[theta].sub.r], 0 [less than or equal to] [[theta].sub.r] [less than or equal to] 1, is a coefficient to smooth the reorder point
while the parameter G is used to adjust service level.
If the inventory level reaches the reorder point
r, where r = DL + k[sigma] [square root of (L)], DL = the expected demand during the lead time, k[sigma][square root of (L)] = safety stock (SS), and k = safety factor, the buyer places an order of quantity Q.
The reorder point
R is realized through initializing the amount of inventories in each stock point to be the sum of its reorder point
and order quantity, i.e.
Establishing number schemes, reorder points
, vendor cross references, and alternate part numbers takes considerable effort.
In LRP systems, the reorder level s in BSC systems is turned into a dynamic reorder point
s(t) based on a time series of forecasted demand or planned requirements.
Ninety-two percent did not have an automatic reorder point
. Reordering was primarily determined after observing what was on the shelf, considering what the reorder time was, and determining what the owner-manager felt the demand for the product would be.
The basic reason for these increases in demand fluctuation is that the classical approach to regular replenishment of the stocks at the different levels of a distribution chain optimizes each level separately, mostly by using reorder point
The system kept track of what was on hand, what was on order and reorder points
. Whenever the inventory level for a certain item reached the reorder point
, the system generated a report alerting management to reorder the item.
If the average demand per month and reorder point
information were fractions, they were rounded up to the next integer.
The key terminology in the inventory management includes: stock level, demand in given period, costs of ordering, costs of warehousing, costs of stockout, lead time, order quantity and reorder point