Chapter 2 – Fiscal Management

22030.10.5.7 Example for Calculation of Requisitioning Objective Levels

• An example of the R/O method follows:

  • Yearly demand: 720 items.

  • Ordering and shipping time: 60 days.

  • Operating level: 60 days.

  • Safety level: 15 days.

• Step 1 – convert yearly demand into issues per day. Issues per day = 720 items ÷ 365 = 2.

• Step 2 – calculate the number of items used during the ordering and shipping time. Number of items = ordering and shipping time (in days) x issues per day = 60 x 2 = 120 items.

• Step 3 – calculate the number of items required for the operating level. Number of items = operating level (in days) x issues per day = 60 x 2 = 120 items.

• Step 4 – calculate the number of items required for the safety level. Number of items = safety level (in days) x issues per day = 15 x 2 = 30 items.

• Step 5 – calculate the R/O. R/O = number of items for the ordering and shipping time + number of items for operating + number of items for safety level = 120 + 120 + 30 = 270 items.

• Step 6 – calculate the reorder point (ROP). ROP = number of items for ordering and shipping time + number of items for safety level = 120 + 30 = 150 items (When stock on hand is depleted to 150 items, a replenishment order is prepared).

• Step 7 – calculate the quantity to be ordered. Order quantity = R/O – RPO = 270 – 150 = 120 items (When a replenishment order is prepared, the quantity ordered is 120 items).

• This is a minimum guideline. Such things as minimum order quantities from supply sources (e.g., contract vendors) may require that an order be issued for more than the difference between the R/O and ROP. Use your own judgment ordering more items delays the need to reorder the next time but increases the amount of inventory investment to more than is required.