Determination of Buffer Stocks
Its size depends both on lead time and variation in demand.
Situation where demand rate varies – B.S = (L.T)*(Max. demand rate-Av. Demand rate)
When both L.T & D.R varies – B.S = (M.L.T*M.D.R)-(A.L.T*A.D.R)
When only L.T Varies – B.S = (M.L.T-A.L.T)*D.R
Lead time is the time gap between placement of an order and the time of actual supply.
L.T=Servicing time + delivery time + receiving time
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