11. The average demand for bottled water at a supermarket is 50 cases per day. Inventory is 20 cases and there is an open order of 400 cases. The time between placement of an order for bottled water and receipt of the order is four days. No backorders exist. What is the inventory position (IP) in this scenario?
Answer: B
The inventory position (IP) is 420 cases.
To calculate the inventory position, we consider the current inventory, the open orders, and the demand over the lead time. The formula for inventory position is: IP = Inventory + Open Orders - Demand during Lead Time. In this scenario, with 20 cases in inventory, 400 cases on order, and a daily demand of 50 cases over 4 days, the IP totals 420 cases.
A) 200 cases
This option is incorrect as it does not account for the open orders and the demand during the lead time. The calculation would need to include both the current inventory and the cases expected to arrive from the open order, which significantly increases the total.
B) 420 cases
This option is correct. The calculation involves starting with the current inventory of 20 cases, adding the open order of 400 cases, and subtracting the demand over the four-day lead time, which totals 200 cases (50 cases per day for 4 days). Thus, the inventory position is 20 + 400 - 200 = 420 cases.
C) 600 cases
This option is incorrect because it incorrectly adds the inventory and open order without accounting for the demand during the lead time. The demand of 200 cases must be deducted from the total to arrive at the accurate inventory position.
D) 620 cases
This option is also incorrect. It appears to mistakenly combine the inventory and open orders while failing to subtract the demand during the lead time. Thus, it does not reflect the actual inventory position, leading to an inflated number.
Conclusion
The correct answer of 420 cases accurately reflects the inventory position by incorporating the current stock, open orders, and expected demand during the lead time. All other options fail to consider the necessary subtraction of demand, resulting in incorrect calculations. This highlights the importance of understanding inventory management principles, particularly in calculating inventory position effectively.