Maximum re-order quantity is equal to:

Maximum re-order quantity is equal to:

• A. buffer inventory
• B. average usage x average lead time
• C. maximum inventory level
• D. maximum inventory level - buffer inventory

Answer: (D)

The idea being tested is how to limit how much you order so that you don’t push stock above the maximum level you want to hold. You keep a safety stock (buffer) to protect against demand variability during lead time, and you set a maximum inventory level to prevent overstock. The largest amount you can reorder at once without exceeding that maximum is the gap between the maximum inventory level and the buffer stock you already hold. In other words, you can order up to the difference: maximum inventory level minus buffer inventory. So, if the maximum level is 100 units and the buffer stock is 20 units, the maximum reorder quantity is 80 units. The other options don’t reflect this gap to the cap: the buffer stock alone is just safety stock, the average usage times lead time is a demand estimate, and the maximum inventory level by itself is the cap, not the amount you should order to reach it.

The idea being tested is how to limit how much you order so that you don’t push stock above the maximum level you want to hold. You keep a safety stock (buffer) to protect against demand variability during lead time, and you set a maximum inventory level to prevent overstock. The largest amount you can reorder at once without exceeding that maximum is the gap between the maximum inventory level and the buffer stock you already hold. In other words, you can order up to the difference: maximum inventory level minus buffer inventory.

So, if the maximum level is 100 units and the buffer stock is 20 units, the maximum reorder quantity is 80 units. The other options don’t reflect this gap to the cap: the buffer stock alone is just safety stock, the average usage times lead time is a demand estimate, and the maximum inventory level by itself is the cap, not the amount you should order to reach it.