Initial Quantity — Priming the Supply Chain

There is a need to initialize a 3C inventory. The initial level, if one were to start from scratch, is called Qq. This level primes the supply chain by accounting for lags due to both the lead-time and the need for initial stock. It is also the worst-case size of the entire supply chain inventory for any particular material and for a new product with untested sales experience. If no sales occur after priming the supply chain with initial inventory, the worst case possible, the write-off would be the Qq quantity. 

Lead-time (LT) is the time between placing an order and receipt from the supplier into on-hand inventory. It includes cycle times for order processing, staging materials, setup, production, inspections, and transit. 

The calculation is Qq = RBILL x (TBP + LT) for each material category, as shown in Table 33.5. In practice, this stock would only be put in place if the operation were entirely new. In an existing supply chain, there may already be more stock than the Qq level. In these cases, no replenishment should occur until the level is reduced. Table 33.5 also illustrates the added inventory due to infrequent reviews. 

Note that all the lead-time (LT) and time between purchases (TBP) parameters used in this example can be reduced. This will decrease initial inventory along the supply chain and the size of reorder quantities. Reducing reorder quantities increases the level of continuous flow in the supply chain. Also note that the method automatically takes into account the lead-time. Lead-time changes, of course, should be monitored to adjust Qq. 

Handbook of Supply Chain Management, Second Edition 

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