When calculating ROP, what two factors are combined?

The correct answer, which combines average demand and lead time, is fundamental in determining the Reorder Point (ROP) in inventory management. ROP is the level of inventory at which a new order should be placed to replenish stock before it runs out.

Average demand reflects the typical quantity of inventory that is consumed or sold over a specific period, while lead time is the amount of time it takes from placing an order until it is received and ready for use or sale. By multiplying the average demand by the lead time, businesses can determine the minimum inventory level that must be maintained to meet customer demand without interruption during the lead time period.

This ensures that the inventory system is proactive rather than reactive, helping to avoid stockouts and maintain smooth operations. Therefore, the combination of average demand and lead time allows businesses to effectively manage their inventory levels relative to their specific consumption rates and supply chain timelines.