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?

Rationale

The inventory position (IP) in this scenario is 420 cases.

To calculate the inventory position (IP), we consider the current inventory, open orders, and the average demand over the lead time. The IP is determined by adding the current inventory (20 cases) to the open order (400 cases) and then subtracting the demand for the lead time (4 days at 50 cases per day, totaling 200 cases). Therefore, the calculation is: 20 + 400 - 200 = 420 cases.

A (200 cases) YOUR ANSWER

This option only accounts for the demand over the lead time, which is 200 cases, but it does not consider the current inventory or the open order. The inventory position must include both on-hand inventory and any orders that are pending.

B (420 cases) CORRECT

This is the correct answer as it accurately reflects the total inventory position. It combines the current inventory of 20 cases and the open order of 400 cases, then subtracts the total demand of 200 cases over the lead time, leading to an IP of 420 cases.

C (600 cases) YOUR ANSWER

This choice miscalculates the inventory position by adding the current inventory and open order without adjusting for the demand. The correct calculation requires subtracting the total demand from the sum of the current inventory and open order.

D (620 cases) YOUR ANSWER

This option incorrectly adds the current inventory and open order without accounting for the demand during the lead time. The demand must be deducted to arrive at the accurate inventory position, making this choice invalid.

Conclusion

The inventory position (IP) is a crucial metric that reflects the total available stock considering on-hand inventory and open orders, adjusted for expected demand. In this scenario, the correct calculation reveals an IP of 420 cases, ensuring that inventory management aligns with demand forecasting. Proper understanding of IP helps supermarkets maintain optimal stock levels and avoid stockouts.

The inventory position (IP) in this scenario is 420 cases.

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