Background: I am working on defining Target Days of Supply for a periodic review system with a review period of 1 week. I have weekly demand data for the complete year. I can calculate Mean weekly demand and standard deviation of the weekly demand.
Target Days of Supply is setup such that during each weekly review we compare these Target Days of Supply with available inventory in days. If Target Days of Supply < Available Days on hand inventory then more units are ordered to bring the inventory level up to Target Days of Supply. The orders are placed in such a manner that system looks in future to analyze when Target Days of Supply will go below Available days on hand and create an advance order.
For Example: Suppose we are reviewing in week "T". Lead time to produce an item is 4 weeks. Review is carried out on last day of each week. The system will look in future i.e. T+1 week, T+2....... T+n weeks to see when Target Days of Supply < Available days of inventory. Suppose at T+5 weeks the inventory Target Days of Supply < Available Days of inventory. The system will create an advance order to produce more units in T+2 weeks so that the product hits the inventory at the end of T+5 and start of T+6 weeks.
Question: To define Target Days of Supply, I am trying to calculate the Target Inventory Level. I know that for a periodic review system where we place an order and wait for the order to arrive after lead time, target level should be = "Mean Demand per week(Lead Time + Review Period in weeks) + Safety Stock (during lead time + review period)"*.
In this specific case as we are looking in future and placing production order in advance considering the lead time, will the target level of units calculation change to = "Mean Demand per week(review period) + Safety Stock (during lead time + review period)"?*
Or the formula will remain unchanged as = "Mean Demand per week(Lead Time + Review Period in weeks) + Safety Stock (during lead time + review period)"*.