Certified Professional Property Administrator (CPPA) Module 3 Practice Test

What Lead Time is used for computing the ROP?

The average Lead Time The maximum Lead Time The minimum Lead Time The total Lead Time

Correct Answer:

The average Lead Time

Explanation:

Reorder point is designed to cover the amount you expect to consume during the time it takes to receive a new order. That expected consumption depends on how long you wait (lead time) and how fast you use stock (demand). In practice, you estimate this by using the average lead time, multiplied by your average demand, and then you add safety stock if there’s variability. So the lead time used to compute the ROP is the average lead time because it provides a balanced, central estimate of how long you’ll be without replenishment. Using the maximum lead time would push the ROP higher than necessary and increase carrying costs, while the minimum lead time would risk stockouts. Total lead time isn’t a standard basis for this calculation.

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