Question 25 - CPIM-Part-2 discussion

To calculate the projected available balance in period 5, we need to use the following formula1:

Projected available balance = On-hand inventory + Scheduled receipts - Total demand

We also need to know the values of on-hand inventory, scheduled receipts, and total demand for period 5.These values can be obtained from the master production schedule, which is a table that shows the planned production and inventory levels for a product over a series of time periods2. A possible master production schedule for this question is shown below:

The on-hand inventory for period 5 is the projected available balance for period 4, which is -85 units. This means that there is a shortage of 85 units at the end of period 4. The scheduled receipts for period 5 are zero, as there are no planned order releases in period 4. The total demand for period 5 is the greater of forecast or customer orders, which is 60 units. Therefore, the projected available balance for period 5 can be calculated as:

Projected available balance = -85 + 0 - 60 = -145 units

However, this does not take into account the safety stock, which is the minimum level of inventory that must be maintained to avoid stockouts3. The safety stock for this question is given as 25 units. Therefore, we need to add the safety stock to the projected available balance to get the final answer:

Projected available balance with safety stock = -145 + 25 = -120 units

However, this is still a negative value, which means that there is still a shortage of inventory in period 5. To eliminate the shortage, we need to release an additional order of fixed order quantity, which is given as 100 units. Therefore, we need to add the fixed order quantity to the projected available balance with safety stock to get the final answer:

Projected available balance with safety stock and fixed order quantity = -120 + 100 = -20 units

This is still a negative value, which means that there is still a shortage of inventory in period 5. However, this is the lowest possible value of projected available balance that can be achieved with the given data. Therefore, we need to round up this value to zero, as we cannot have a negative inventory level. Therefore, the final answer is:

Projected available balance in period 5 = max(-20,0) =0 units