Page 410 - F1 Integrated Workbook STUDENT 2018
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Chapter 24
3.6 Calculating the reorder level (ROL) with known demand and lead time
Having decided how much inventory to reorder, the next problem is when to reorder.
The firm needs to identify a level of inventory which can be reached before an order
needs to be placed.
The ROL is the quantity of inventory on hand when an order is placed.
When demand and lead time are known with certainty the ROL may be calculated
exactly,
i.e. ROL = demand in the lead time.
3.7 ROL with variable demand or variable lead time
When there is uncertainty over demand or lead time are known then the ROL will be
calculated as:
Maximum demand × maximum lead time.
This will lead to the creation of buffer stock.
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