critical-ratio analysis

critical-ratio analysis
Gen Mgt
a technique used in inventory control to calculate comparative priorities for the reordering of inventory.
     Critical-ratio analysis requires the division of remaining stock items by the likely daily demand for them. This figure is then divided by the time taken to process an order, to derive the critical ratio. The smaller the ratio, the greater the reorder priority. A ratio of less than 1 indicates an imminent shortage.
     Critical ratios are also used in conjunction with MRP II systems to determine the sequence in which orders should be processed. In this case, a ratio of less than 1 indicates that the order is behind schedule.

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