Question

Consider the EOQ model with positive lead time. Lead-time is L1 with probability p and L2...

Consider the EOQ model with positive lead time. Lead-time is L1 with probability p and L2 with probability (1-p). How would you calculate the reorder point?

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Answer #1

We presume that there will be no safety stock required. This assumption is made since it is assumed that rate of demand is constant with NIL standard deviation. Question of safety stock arises under fluctuating demand situation with a certain amount of standrad deviation of regular demand.

In such case ,

Reorder point = Average demand per unit time x expected lead time

Expected Lead time

= L1 x Probability of leadtime L1 + L2 x Probability of lead time L2

Therefore ,

reorder point = Average demand x ( L1 x Probability of leadtime L1 + L2 x Probability of Lead time L2 )

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