Description: This is a demonstration to show how the Order Point is calculated for a product. 1) To calculate the Order Point, you must first locate the Average on the K3S_3030 Product History screen. Remember that the Average given on K3S_3030 is the average number of cartons sent to the store in one month. Using the example pictured below, we see that the Average for this product is 30.44 cartons per month.
2) Take the Average and multiply by 12 to get the average number of cartons sent to the store in a year. 30.44 cartons per month x 12 months = 365.28 cartons per year 3) Now take the average number of cartons per year and divide by 364 to get the average number of cartons per day. 365.28 cartons per year / 364 days = 1.003 cartons per day
4) Take the number of cartons per day and multiply by the Order Point in days. 1.003 cartons per day x 12 days = 12 Cartons
5. You have now found the Order Point in Cartons. Notice how the number of days for Safety stock, Lead time, and Order cycle directly affect the Order Point in Cartons. Since order cycle (7 days) and lead time (2 days) are fixed values, safety stock is the primary variable of the order point.
Products that are more predictable, or have a more stable history, will have lower safety stock values.
Products that are less predictable, or have a less stable history, will have higher safety stock values. In looking at the example above, we see that 12 days is equivalent to 12 cartons for the order point. The system will add another 1.003 cartons to the Order Point in Cartons each time a day is added for Safety stock, Lead time, or the Order cycle. |
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How the Order Point is Calculated |
