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Working capital management – Inventory control

Question 6

Re-order level

A company has demand per year for a product of 66,000 units and the supplier
has a lead time of 2 months.

The company wishes to keep a buffer inventory of 2,000 units.

Calculate the re-order level.

When there is a buffer inventory:

Re-order level = demand in lead time + buffer.

66,000/12 × 2 + 2,000 = 13,000 units.

Illustrations and further practice

Now try TYU questions 5 and 6 from Chapter 8

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