Final answer:
The transit time should be multiplied by the daily demand rate to estimate average in-transit inventory.
Step-by-step explanation:
To estimate average in-transit inventory, the transit time (days) should be multiplied by the daily demand rate. This gives you the average amount of inventory that is on its way to the destination but not yet arrived and available for sale or use.
The calculation helps businesses in managing inventory levels and understanding the component of inventory which is 'in-transit', thereby contributing to the total lead time.
To estimate average in-transit inventory, the transit time (days) should be multiplied by the order cycle time. The order cycle time is the time it takes for an order to be placed, processed, and delivered.
This includes the time from when the order is placed to when it is received by the customer. By multiplying the transit time by the order cycle time, you can estimate how much inventory is in transit at any given time.