Explain Re-Order Quantity (ROQ).
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The Re-Order Quantity (ROQ) is a fundamental concept in inventory management that determines the quantity of inventory items to be ordered when replenishing stock. It represents the optimal order quantity that balances the costs associated with holding inventory against the costs of ordering and replenishment.
The ROQ is calculated based on factors such as demand forecasts, lead times, and inventory costs. The goal is to minimize total inventory costs while ensuring that sufficient stock is available to meet customer demand and maintain desired service levels.
The formula for calculating ROQ often involves considering the Economic Order Quantity (EOQ), which represents the order quantity that minimizes total inventory costs, including ordering costs and holding costs. The EOQ formula takes into account variables such as demand rate, ordering cost, and holding cost per unit.
By setting an appropriate ROQ, organizations can optimize inventory levels, minimize stockouts and excess inventory, reduce holding costs, and improve overall supply chain efficiency. Adjusting the ROQ based on factors such as demand variability, supplier lead times, and inventory turnover rates is essential for effective inventory management and cost optimization.