Buffer Inventory, Re-order Level, and Lead Time
What is buffer inventory and why is it used in inventory management?
Buffer inventory is a reserve stock held to protect against uncertainties in demand or supply. It is used to prevent stockouts, reduce lead times, and provide a buffer against unexpected disruptions.
How is the reorder level determined in inventory management?
The reorder level in inventory management is determined by considering factors such as lead time (time taken to replenish inventory), average demand during lead time, safety stock (buffer stock to account for uncertainties), and desired service level. The reorder level is calculated by adding the average demand during lead time to the safety stock level. When the inventory level reaches the reorder level, it triggers the replenishment process.