Question

Dan's procurement team will release an order for pigments (i.e., one of the main ingredients for making paints) to meet the gross requirement over the next 5 weeks as indicated in the inventory status record below. The lead time for pigments is one week. Currently, there are 40K gallons of pigment on hand. Assuming that Dan's follows “Lot-for-lot” method to determine the lot size (i.e., order quantity), when and how much should Dan's order pigments?

		Week	Week	Week	Week	Week
	On Hand	1	2	3	4	5
Gross Requirements			75		50	70
Scheduled Receipts
Projected Available Balance	40
Planned Order Releases

Answer 1

The schedule and quantities would be as under:

		Week	Week	Week	Week	Week
	On Hand	1	2	3	4	5
Gross Requirements			75		50	70
Scheduled Receipts			35		50	70
Projected Available Balance	40	40	0	0	0	0
Planned Order Releases		35		50	70

Projected Available Balance = On hand inventory – requirement + Scheduled receipts

Eg.

Projected Available Balance for week 1 = 40-0+0 = 40

Projected Available Balance for week 2 = 40-75+35 = 0

Scheduled receipts = Quantity required to make the Projected Available Balance “nil”

Planned order release = quantity required as per the Scheduled receipt and defined lead time.

Lead time = 1 week (so Planned order release will happen in the 1 week prior to the scheduled receipt)

Planned order release will happen in Week 1, Week 3 and Week 4 for quantity 35, 50 and 70 respectively.

These would be delivered as scheduled receipts in Week 2, Week 4 and week 5.