Page 345 - Accounting Information Systems
P. 345
316 PART II Transaction Cycles and Business Processes
FI GU RE
7-11 INVENTORY USAGE
Daily Demand
Q Inventory
Cycle
Inventory
Level
ROP
Time (days)
Lead Time
additional inventories called safety stock must be added to the reorder point to avoid unanticipated stock-
out events. Figure 7-12 shows an additional 10 units of safety stock to carry the firm through a lead time
that could vary from 8 to 10 days. The new reorder point is 50 units. Stock-outs result in either lost sales
or back-orders. A back-order is a customer order that cannot be filled because of a stock-out and will
remain unfilled until the supplier receives replenishment stock.
When an organization’s inventory usage and delivery patterns depart significantly from the assump-
tions of the EOQ model, more sophisticated models such as the back-order quantity model and the pro-
duction order quantity model may be used. However, a discussion of these models is beyond the scope of
this text.
FI GU RE
7-12 THE USE OF SAFETY STOCK TO PREVENT STOCK-OUTS
d = 5 units
per day
Q = 346 units
Units of
Inventory
ROP = 50
10
Safety Stock
0
Lead time
varies from
8 to 10 days
Time
