Question

If an existing reorder point is increased, which of the following would be true?

I. Safety stock is increased.
II. The lead time on the item being ordered is increased
III. Average inventory levels are decreased.

a) I only
b) II only
c) III only
d) I and II
e) I, II and III

Answer 1

If an existing reorder point is increased, safety stock is increased, the lead time is unaffected, and average inventory levels increase.

Step-by-step explanation:

If an existing reorder point is increased, the following would be true:

1. Safety stock is increased: An increase in the reorder point means that more inventory is held as safety stock in order to prevent stockouts during lead time and fluctuations in demand.
2. The lead time on the item being ordered is unaffected: The reorder point represents the inventory level at which a new order is placed. The lead time remains the same regardless of the reorder point.
3. Average inventory levels are increased: By increasing the reorder point, the average inventory level will go up because there will be more inventory on hand at any given time.