Inventory Reorder Points and the Quantities per Order

All businesses have unique characteristics. It is vital for the business to understand and evaluate the characteristics especially when establishing the inventory levels. The characteristics determine the optimum inventory level of the business. When determining the inventory levels it is vital to consider whether the commodities are readily available or common. If the commodities are readily available, a company should not hold much inventory. The reverse would be true if the products are custom made. A business should also consider the turnover of products when determining the level of inventory and the inventory reorder points. The inventory levels of products that have a fast turnover are treated differently from those that have slow turnover. A business should also consider the shelf life of the product when determining the inventory levels. Products that have a short shelf life should have low levels of inventory. The reverse may be true for products that have a long shelf life. The order lead-time is one of the major factors that determine the inventory levels. Order lead-time refers to the time between when a company places an order and the time when it receives the order. The inventory lead-times determine the amount of inventory that a company should hold (Hatten, 2010).

Get There Navigation Technologies (GTNT) engages in the manufacture of navigation technologies use by car rental and transportation industry. Therefore, their products are not perishable. The company can keep as much inventory as it wants. The company intends to sell 45,000 units of its new product, Get Me There. Considering the fact that it currently manufactures only 15,000 units of the product, the product has a fast turnover. The order lead time of the product from subcontractor A is 45 days, whereas for subcontractor B it is 35 days. This is a significantly higher order lead time considering the specifics of the company. Ideally, the company should hold inventory that would cover the 45 days, which is the maximum time that the subcontractors would take to deliver the orders to the company. Therefore, the company should initially order 15,000 units from each subcontractor. After 45 days, it would have enough inventory to meet the demand for Get Me There. 15 days after making the first order it should make another similar order to the subcontractors. It should continue this practice until it has enough inventory to cater for any events that may limit the ability of the subcontractors to deliver the products within the specified period (Hatten, 2010).


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