Order point
system / Fixed Order quantity system of inventory control is based on the (Re)Order
point and Order quantity factors rather than on the time
factor. The inventory policy, in this system, is drawn
,defining the following:
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Fixed Order point / Re-Order Level (ROL) for each item
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Fixed Maximum , Minimum levels for each item
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Fixed Quantity to be ordered
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Often called Min-Max systems, these involve both a maximum
inventory level and a minimum at which reorders are generated.
Basically, units of an item are issued until the level of that
inventory reaches the predefined reorder point. An order is
then triggered for a predetermined quantity (usually a
calculated economic order quantity). In this system, the order
quantity is constant and the time between orders s variable.
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The different
Inventory points (Levels) of stock for an item
are :
Maximum level (Max.) , predetermined
Minimum Level (Safety stock, SS), predetermined
Lead time (LT) , predetermined
Monthly demand = D (often based on Moving average method)
MaxL.= (Review period + LT + SS) X D
Reorder level (ROL) = (LT + SS) X D
Order Quantity (OQ) = Max. – (Present stock + Pipeline dues) |
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