The following animation is an example of poor re-order point usage.

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The following animation is an example of good re-order point usage.

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Presentation transcript:

The following animation is an example of poor re-order point usage. This example is very similar to the one describing a good example of re-order point management. By running through both examples, you will learn the (slight) difference between them. The delivery time of the raw materials is 7 days. The re-order point is set to 500 and the order size is set to 500 units. Press enter and the slide show begins… Virtual Teams in International Business

Inventory size gets below the re-order point 1.000 Inventory size gets below the re-order point 900 800 500 units ordered 700 600 Re-order point 500 500 400 300 Order size 500 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One day passes, some more materials consumed 1.000 900 The delivery moves forward 800 Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One day passes, some more materials consumed 1.000 900 The delivery moves forward 800 Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One more day passes, some more materials consumed 1.000 900 The delivery moves forward 800 Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One more day passes, some more materials consumed 1.000 900 The delivery moves forward 800 Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One more day passes, some more materials consumed 1.000 900 The delivery moves forward 800 Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One more day passes, some more materials consumed 1.000 900 The delivery moves forward 800 Inventory + DELIVERY exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

One more day passes, last materials consumed, inventory is empty 1.000 900 The delivery arrives 800 Inventory exceed re-order point so NO new raw materials are ordered 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

500 units ordered and the loop begins again… Another day passes, materials consumed, inventory get below re-order point again 1.000 900 800 500 units ordered and the loop begins again… 700 600 500 400 300 200 100 Inventory 1 day to delivery 2 days to delivery 3 days to delivery 4 days to delivery 5 days to delivery 6 days to delivery 7 days to delivery

The example given seems to be ok on the surface level The example given seems to be ok on the surface level. Compared to a more optimal example, however, this example has a much higher average inventory level (250 versus 50 in the good example), leading to lower inventory turnover (= higher capital usage) and higher waste. Virtual Teams in International Business