Supplier lead times
Next, to make things a bit more realistic, let’s say that we can’t get stock instantaneously for this product. Rather, it will take 1 month from when we place an order until products are available to customers (so
lead time = 1 month).
Also assume we have
stock_on_hand = 5 and the same forecast as before:
|#||Month 1||Month 2||Month 3||Month 4||Month 5||Month 6||Total|
|Forecasted sales (units)||4||5||7||3||4||6||29|
In this case, by the time our new stock arrives we will only have one unit left in stock.
left_over = Max(0, stock_on_hand - lead_time_demand) = 5 units - 4 units = 1 units
And the amount of stock that we should reorder thus becomes:
Requirement = forecasted_demand_from_delivery - left_over = 29 units - 4 units - 1 units = 24 units
So far so good. Now let’s take a look at order frequency.