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Reorder Point Formula and Examples

The document discusses the reorder point formula for determining the minimum inventory level needed to maintain a given level of customer service. It provides the general formula and formulas for calculating reorder point when demand, lead time, or both are variable. It then provides 3 example problems applying the formulas to determine the reorder point for a hotel's washcloths, soap, and glasses inventory.

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Mary Rose Manglal-lan
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36 views1 page

Reorder Point Formula and Examples

The document discusses the reorder point formula for determining the minimum inventory level needed to maintain a given level of customer service. It provides the general formula and formulas for calculating reorder point when demand, lead time, or both are variable. It then provides 3 example problems applying the formulas to determine the reorder point for a hotel's washcloths, soap, and glasses inventory.

Uploaded by

Mary Rose Manglal-lan
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Reorder Point Formula

General Formula: ROP = expected demand during lead time + safety stock

= dLT + z σ dLT

1. If only demand is variable, then the standard deviation of lead time demand is
σ dLT = √ LTσ d , and the reorder point is ROP=d <+ z √ LTσ d :
where: d = average daily or weekly demand
σ d = standard deviation of demand per day or week
LT = lead time in days or weeks

2. If only lead time is variable, then the standard deviation of lead time demand is σ dLT=dσ ,
¿

and the reorder point is ROP=d ¿+ z dσ ¿ :


where: d = average daily or weekly demand
σ ¿ = standard deviation of lead time in days or weeks
¿ = average lead time in days or weeks

3. If both demand and lead time are variable, then the standard deviation of lead time
demand is σ dLT= ¿σ +d σ and the reorder point is ROP=d ¿+ z √ ¿ σ 2d +d 2 σ 2¿
√ 2
d
2 2
¿

Problems:

1. The housekeeping department of a hotel uses approximately 400 washcloths per day.
The actual amount tends to vary with the number of guests on any given night. Usage
can be approximated by a normal distribution that has a mean of 400 and a standard
deviation of 9 washcloths per day. A linen supply company delivers towels and
washcloths with a lead time of three days. If the hotel policy is to maintain a stock-out
risk of 2 percent, what is the minimum number of washcloths that must be on hand at
reorder time, and how much of that amount can be considered safety stock?
2. The hotel in the preceding example uses approximately 600 bars of soap each day, and
this tends not to vary by more than a few bars either way. Lead time for soap delivery is
normally distributed with a mean of six days and a standard deviation of two days. A
service level of 90% is desired. Find the ROP.
3. The hotel replaces broken glasses at a rate of 25 per day. In the past, this quantity has
tended to vary normally and have a standard deviation of 3 glasses per day. Glasses are
ordered from a Manila supplier. Lead time is normally distributed with an average of 10
days and a standard deviation of 2 days. What ROP should be used to achieve a service
level of 95 percent?

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