Question

Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence, as slowly) as possible. Central Perk uses 80 filters a day with a standard deviation of 5 filters per day. It would be disastrous if they ran out of these filters, years ago customers caught them using paper towels from the men's room and business suffered. They have set their service level at 99% in hopes of avoiding a similar situation. It takes a fortnight to receive a shipment and the standard deviation of the shipping time is two days. What is safety stock they need to carry to meet the 99% service level?

Answer 1

Answer:

1495 filters are considered as safety stock.

Explanation:

d = 80 filters, std devd= 5, L = 14 days, std dev L= 2 days

Std dev dL = Sq rt ( Lσ d2 + d 2σ L2  ) = sq rt ( 350 + 25600) = 161 filter

z= 2.33 at 99% SL

safety stock = 2.33 X 161 = 375 filter

Reorder point = dL + Safety stock = 80 X 14 + 375 = 1495 filters