Order Point Formula
Order points are based on usage during the time necessary to requisition, order, and
receive materials, plus an allowance for protection against stockout. The order point is
reached when the available quantity is just equal to the foreseeable needs; that is, when
the sum of inventory on hand and quantities due in equals the sum of lead time usage
quantity and safety stock quantity. In equation form, the order point can be expressed as:
I + QD = LTQ + SSQ
Where :
I = Inventory balance on hand
QD = Quantities due in (before depletion of I) from orders previously placed, materials transfers, and returns to stock
LTQ = Lead time quantity, which equals normal lead time in months, weeks, or days, multiplied by a normal month’s, week’s or day’s use
SSQ = Safety stock quantity
1f the weekly usage of a stock item is 175 units, and the lead time is normally four
Order Point FormulaOrder points are based on usage during the time necessary to requisition, order, andreceive materials, plus an allowance for protection against stockout. The order point isreached when the available quantity is just equal to the foreseeable needs; that is, whenthe sum of inventory on hand and quantities due in equals the sum of lead time usagequantity and safety stock quantity. In equation form, the order point can be expressed as:I + QD = LTQ + SSQWhere :I = Inventory balance on handQD = Quantities due in (before depletion of I) from orders previously placed, materials transfers, and returns to stockLTQ = Lead time quantity, which equals normal lead time in months, weeks, or days, multiplied by a normal month’s, week’s or day’s useSSQ = Safety stock quantity1f the weekly usage of a stock item is 175 units, and the lead time is normally four
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