Part-Period Balancing

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Part-period balancing attempts to select the number of periods covered by the inventory order that will make total carrying costs as close as possible to the set- up/order cost. When a proper lot size has been determined, utilizing one of the above techniques, the reorder point, or point at which an order should be placed, can be determined by the rate of demand and the lead time. If safety stock is necessary it would be added to the reorder point quantity.

Reorder point =Expected demand during lead time + Safety stock

 

Thus, an inventory item with a demand of 100 per month, a two-month lead time and a desired safety stock of two weeks would have reorder point of 250. In other words, an order would be placed whenever the inventory level for that good reached 250 units.

 

Reorder point = 100/month × 2 months + 2 weeks’ safety stock = 250

 

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