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Chapter 12

Q. 12.EX.7

COMPUTING REORDER POINTS (ROP) FOR IPHONES WITH AND WITHOUT SAFETY STOCK. An Apple store has a demand (D) for 8,000 iPhones per year. The firm operates a 250-day working year. On average, delivery of an order takes 3 working days, but has been known to take as long as 4 days. The store wants to calculate the reorder point without a safety stock and then with a one-day safety stock.
APPROACH \blacktriangleright First compute the daily demand and then apply Equation (12-6) for the ROP. Then compute the ROP with safety stock.

ROP = Demand per day × Lead time for a new order in days
ROP = d × L                 (12-6)

Step-by-Step

Verified Solution

SOLUTION \blacktriangleright
d = \frac{D}{Number  of  working  days  in  a  year} = \frac{8,000}{250} = 32 units

ROP = Reorder point = d × L = 32 units per day × 3 days = 96 units

ROP with safety stock adds 1 day’s demand (32 units) to the ROP (for 128 units).

INSIGHT \blacktriangleright When iPhone inventory stock drops to 96 units, an order should be placed. If the safety stock for a possible one-day delay in delivery is added, the ROP is 128 (= 96 + 32).

LEARNING EXERCISE \blacktriangleright If there are only 200 working days per year, what is the correct ROP, without safety stock and with safety stock? [Answer: 120 iPhones without safety stock and 160 with safety stock.]
RELATED PROBLEMS \blacktriangleright 12.11d, 12.12, 12.13, 12.15f (12.33d, 12.34, 12.35f, 12.36c are available in MyOMLab)