From the following information, you are required to determine:
(a) Ordering Point or Re-order Level
(b) Minimum Limit or Minimum Stock Level
(c) Maximum Limit or Maximum Stock Level
(d) Danger Level
Maximum daily requirements 800 units
Time required receiving emergency supplies 4 days
Average daily requirement 700 units
Minimum daily requirement 600 units
Time required for fresh supply one month (30 days)
Economic Order Quantity 29000 units
Solution:
(a) Ordering Point = Maximum daily requirement × lead time
Ordering Point or Re-order Level = 800 × 30 = 24000 units
(b) Minimum Limit = Ordering Point – Average Consumption
Minimum Limit or Level = 2400 – (700 × 30)
Minimum Limit or Level = 24000 – 21000 = 3000 units
(c) Maximum Limit = Ordering Point – Minimum consumption while the replacement order is outstanding + E.O.Q
Maximum Limit or Maximum Stock Level =
24000 – (600 × 30) + 29000
Maximum Limit or Maximum Stock Level =
24000- 18000 + 29000 = 25000 units
(d) Danger Level = Average daily consumption × time required to receive emergency supply
Danger Level = 700 × 4 = 2800 units
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