Question

'Zen MotoCorp', a leading motorcycle manufacturer, requires batteries for its production units. The procurement lead time is two months and the demand during this period is expected to be 2000 batteries per month, making its reorder point at 4000 batteries. Fresh supplies should arrive just as the stock reaches zero. However, due to variability in the rate of demand (or consumption) as well as in the supply or manufacturing lead time etc., it may reach a zero stock status before the supply arrives. To cater to such variability, it decides to add 500 batteries to its reorder level. The reorder level would now be 4500 batteries. The addition of 500 batteries in the reorder point is known as:

• A. Average Inventory
• B. Annual demand for the item
• C. Economic Order Quantity
• D. Safety Stock

Hint:

$$\text{Reorder Point} = (\text{Lead Time} \times \text{Average Demand}) + \text{Safety Stock}$$ Safety Stock acts as an inventory insurance policy, protecting operations against unexpected supply chain delays or sudden surges in consumer demand.

Answer 1

The Correct Option is D