Non-zero lead time, Managerial Accounting

Non-zero lead time (determining reorder point)

This basic EOQ model assumes that the suppliers lead time is zero (i.e. goods are delivered immediately on the day the order was made).  In reality, however, supplies are rarely ordered and received on the same day. Accordingly, orders must be placed some time before stocks reach zero.  In world of certainty (when demand is continuous and constant) the reorder point will be the number of days/weeks lead time multiplied by the daily/weekly usage during the period.

That is, Reorder point = Average daily usage x Lead time in days.

1369_curve.jpg

Note: The reorder point has no cost implications, since it does not affect the EOQ.

 

Posted Date: 12/6/2012 6:27:40 AM | Location : United States







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