ROL is calculated using which of the following combinations?

ROL is calculated using which of the following combinations?

• A. Maximum demand × minimum lead time
• B. Average demand × maximum lead time
• C. Minimum demand × maximum lead time
• D. Maximum demand × maximum lead time

Answer: (D)

Reorder level is the stock level at which you trigger a new order to arrive before you run out during the purchase lead time. When you want to guard against the worst-case, you base this level on the maximum amount that could be used over the longest possible lead time. That means multiplying the maximum possible demand by the maximum possible lead time so you have enough stock even if demand spikes and the lead time is longer than expected. The other options would understate the required stock in such worst-case scenarios, risking a stockout. So the safest, most protective approach is maximum demand × maximum lead time.

Reorder level is the stock level at which you trigger a new order to arrive before you run out during the purchase lead time. When you want to guard against the worst-case, you base this level on the maximum amount that could be used over the longest possible lead time. That means multiplying the maximum possible demand by the maximum possible lead time so you have enough stock even if demand spikes and the lead time is longer than expected. The other options would understate the required stock in such worst-case scenarios, risking a stockout. So the safest, most protective approach is maximum demand × maximum lead time.