Question

if the reorder point is greater than the order quantity, explain how the ROP is implemented. Can the ROP be more than twice the order quantity? if so, how is such a situation handled?

Answer 1

Answer:

First we need to understand the ROP calculation procedure.

- ROP is nothing but Reorder point.

ROP concept implemented in the inventory mainly for forecasting the high demand , season demand and according to the requirement , maintaining the safety stock.

ROP = Leadtime demand and safety stock

LEadtime demand will ba calculated for identify the lead time and average daily usage.

lead time will be differ , depends on the place we procure the product and we should no what is the average daily usage.

The simple calculation of lead time demand = Lead time + average daily usage

Safety stock = ( MAX daily usage/ Max lead time in day) - (MIN daily usage/Min lead time in days)

ROP is the mandatory procedure in inventory and calculation should happened every month. I will explain the procedure in step by step:

1. Before start of the ROP calculation first we need to get demand plan monthly growth from demand planner.

2. demand planner forecast the monthly growth and provide the percentage of increase or decrease of the product.

3. ROP analyzer will take past 52 weeks sales quantity and calculate with demand plan monthly growth percentage and get the quantity for the future 52 weeks.

4. Now we need to prepare the ROP summary report with details of current ROP, calculated ROP and Difference.

5. Now S & OP Managers (sales and operation) will cross verify the calculated ROP numbers and approve for place the order for future orders.

6. Each product has there own SOP groups and delivery time matrix. based on this two order will be placed .

now we will come to the scenario of how the situation will be handled if the ROP is greater than the order quantity, explain how the ROP is implemented. Can the ROP be more than twice the order quantity.

ROP is nothing but safety stock.

say for example, Initially sales team will give forecast for next 6 months and update the safety stock.

Yes, It is possible that ROP is more than twice the order quantity.

In this case sales team will reduce the safety stock with more number of sales.

It is not compulsory that as per the forecast sales should sale all the materials. current market situation and customer's plan change will affect the sales.

If ROP is higher than the order quantity then , first sales team will try to reduce the safety stock and next demand planner check current situation and adjust the future demand. so that next order placement will be stop for a while and safety stock will be used for regular order for quite sometime.

if the safety stock turns to normal than again demand planner and S & OP manager analyse the situation and increase the demand