Minimum re-order quantity is equal to:

Minimum re-order quantity is equal to:

• A. buffer inventory
• B. maximum inventory level
• C. average usage x average lead time
• D. safety stock plus expected consumption during lead time

Answer: (C)

When planning replenishment, the amount you need to order to avoid a stock-out while you wait for new stock is the demand that will occur during lead time. With constant average usage, that is calculated as average usage × average lead time. Ordering this amount replenishes exactly the inventory you expect to be consumed while waiting for the supplier to deliver. It’s the base coverage for lead-time demand, not the extra protection of safety stock (which would be added on top), nor the cap on how much you can hold (maximum inventory). So the minimum re-order quantity equals the expected consumption during lead time.

When planning replenishment, the amount you need to order to avoid a stock-out while you wait for new stock is the demand that will occur during lead time. With constant average usage, that is calculated as average usage × average lead time. Ordering this amount replenishes exactly the inventory you expect to be consumed while waiting for the supplier to deliver. It’s the base coverage for lead-time demand, not the extra protection of safety stock (which would be added on top), nor the cap on how much you can hold (maximum inventory). So the minimum re-order quantity equals the expected consumption during lead time.