Explain Why Lumpy Demands Is Created by a Reorder Point

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The Answer is A reorder point system is designed to trigger a new order when the inventory level drops to a certain point, known as the reorder point. This means that orders are only placed when the inventory level hits this specific point, which can lead to lumpy demand. For example, if the reorder point is set too high, then large and infrequent orders will be placed, leading to lumpy demand as the inventory is quickly depleted and then replenished in large quantities.

On the other hand, a Material Requirements Planning (MRP) system takes into account the demand for a product and plans the production and procurement of materials accordingly. This system uses a master production schedule and a bill of materials to calculate the exact materials and components needed at specific times. This can help to smooth out demand by ensuring that the right amount of materials are ordered at the right time, reducing the likelihood of lumpy demand.

In summary, a reorder point system can lead to lumpy demand because it only triggers orders at specific inventory levels, while an MRP system is more proactive in planning for demand and can help to mitigate lumpy demand by ensuring the right amount of materials are ordered at the right time.

Explain Why Lumpy Demands Is Created by a Reorder Point

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Explain Why Lumpy Demands Is Created by a Reorder Point

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Correct Answer:
Answered by ExamLex AI