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, we consider the current inventory, the outstanding orders, and the average demand over the lead time. In this case, the inventory position is calculated as the inventory on hand (20 cases) plus the outstanding order (400 cases) minus the demand during the lead time (200 cases for 4 days at an average of 50 cases per day), resulting in an IP of 420 cases.

A (200 cases) YOUR ANSWER

This choice only accounts for the current inventory on hand and does not consider the outstanding order or the demand during the lead time. The inventory position must include all relevant factors, including orders placed that are yet to be received.

B (420 cases) CORRECT

This is the correct choice as it accurately reflects the calculation of the inventory position: current inventory (20 cases) plus outstanding orders (400 cases) minus the demand for the lead time (200 cases). Thus, it captures the true state of inventory availability.

C (600 cases) YOUR ANSWER

This option incorrectly adds both the current inventory and the outstanding order without accounting for the demand during the lead time. The demand of 200 cases must be subtracted from the total to obtain the accurate inventory position.

D (620 cases) YOUR ANSWER

This choice mistakenly assumes that the demand is either not present or miscalculated, failing to subtract the 200 cases from the total of current inventory and outstanding order. The correct inventory position requires adjusting for the anticipated sales during the lead time.

Conclusion

The inventory position is a critical metric in inventory management, reflecting the total available inventory after accounting for expected demand. In this scenario, correctly calculating the IP involves adding the current inventory to the outstanding order and subtracting the demand over the lead time, resulting in an IP of 420 cases. This comprehensive understanding ensures better inventory control and decision-making in supply chain management.

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

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