Lt Cdr Vaishno Chauhan ECE - 02

Optimisation of Re-Ordering Point

Most companies implement lean production principles.
Minimisation of un-needed and in-efficient operations.

(eg: excessive buffering, backorders etc.)

Re-ordering Point: Pont in time when order is placed for

refurbishment of stocks.
Proper defining of re-ordering point optimises operational

costs.

Optimisation of Re-Ordering Point

Arguably

the most important management in any industry.

part

of

material

Every

industry requires Raw parts/Consumables etc. for production.

materials/Spare

Early Orders of above items will increase the storage

costs.
Delayed orders may result in break in production line

resulting in overall delay.

Definitions
Re-ordering Point :

The point in time when the order has to be placed for a given item keeping in mind purchasing, storing and backorder costs. Time taken from the point a purchase order is submitted to the arrival of products related to that order.

Logistic Lead time (LT) :

Demand Rate of Client (TT) : The speed at which the

client consumes the buffered products

Definitions
Purchasing Order Cost (Ce) : Fixed purchasing order

cost for each batch of product jointly ordered

Storage Cost (Cs) :

Fixed cost per unit of time for each product for being stored in buffer. Fixed cost assigned each time a required product is not available in the buffer. An order that cannot be completed at the current time due to lack of supply.

Backorder Cost (Cb) :

Backorder :

Assumptions
The product comes in Q size of batches.
Logistic lead time is variable but known from historical

data.
Demand rate of client is variable but known from historical

data.
The buffer has infinite capacity.

Optimisation of Costs
The optimisation of re-ordering time will require the joint

minimisation of the following costs :

The minimisation of total cost spent on submitting of purchase

orders (Cet).
The minimisation of the total storage cost for elements in the

buffer (Cst).
The minimisation of total backorder cost view unavailability of

elements in buffer (Cbt)

Optimisation of Costs
The Costs to be minimised can be calculated as follows :
Cst = Nb x Cb Nb the no. of backorders

Cbt = Ne x Ce

Ne the no. of purchasing orders

Cst = Cs x (for i= 1 to m) Ts

Ts The amount of time each of the m products is stored in buffer.

Stock Movement
Max Stock Level

Re ordering Level RP

Min Stock Level

Time Delivery time

Batch Size Q

Stock Level

Problem Formulation
The net cost to be optimised is a sum of Cst , Cet and Cbt.
The net cost is function of the batch size (Q) and the Re-

ordering point (RP).

Cst + Cet + Cbt = f(Q,RP)

Assuming Q to be fixed, the RP remains the only

decision variable. Therefore,

Cst + Cet + Cbt = f(RP)

 Reference :

Optimisation of Reordering Points considering purchasing, storing and servicebreakdown costs by Aitor Goti and Miguel Oetega