How to Define Reorder Quantity?

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    Hi everybody

    Could you share a way or method to replenish a stock if demand of production fluctuates
    in very lows and very highs.
    E.g. in last 6 months demand of raw material was october 150, november 3000, december 2000, january, february and march, 150 each.
    If I get the average by month = 5600/6= 933, this converted to daily demand is 933/30= 31
    So if I assume that daily is 31, is very low compared to some months, e.g. november, 3000/30= 100
    so, 31 very low against 100.
    My problem is how to define the right quantity at the right time to replenish ,If I consider the average daily = 31 I will be short when demand is 100.

    How to manage this issue when demand fluctuates at very very low and at very very highs?
    because in order to define quantities, I use the average daily value?
    I defined the maximum and minimum and the reorder point level.
    The reorder point level is demand * lead time (days needed to arrive raw material from supplier)
    any idea?



    Chris Seider

    A more statistical approach would be to look at safety stock levels based on a % confidence in usage in days or hours or …. That safety stock plus your turns you typically have in inventory will give you a better idea of reorder points.


    Mike Carnell

    @qualitymx If you continue to try to manage your inventory levels based on customer orders and lead times then you are always going to carry more inventory than you need. You need to understand your customers customer. I would think your production planning department already has a model? If not then they aren’t really doing production planning they are order clerks. If you do create a model and it works you need to protect those people who manage it. The minute it misses there will be those people (particularly old timers) who want them fired. As long as over time you are ahead of the customer then they are doing what they need to do.

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