Assume deterministic lead time:
LT
Time
Inventory
Q
Q
LT
LT
LT
Q
Shortage occurs when the demand during lead time
exceeds
ROP
.
Order quantity is fixed, order interval varies.
What should be the value of Q ?
IL
IP
What should be the value of ROP ?
EOQ or Truck load or based on experience
Demand during LT, Service Level
Lead time
LT
Time between
placing and receiving
order.
On Hand
Inventory
O
H
Physical stock
Inventory
Level
IL
IL = OH
–
Quantity on
backorder
Inventory
Position
IP
IP = IL
+ Quantity in
transit

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Review of Terms
•
Mean
average
•
Standard deviation
is a widely used measurement of variability
or dispersion used in statistics. It shows how much variation there is from the mean
.
•
Z score
In statistics, a standard score indicates how many standard
deviations an observation or datum is above or below the mean.
•
Service Level (SL)
“
The desired probability of
not running out of stock in any one ordering cycle.”
“The probability that demand will not exceed supply
during lead time”“ the amount of stock on hand will
be sufficient to meet demand.”
A SL of 95% implies
that there is a 95% probability that demand will be
satisfied
–
thus a 5% risk of a stock out.
20