Question

The annual demand for a product is 14,200 units. The weekly demand is 273 units with a standard deviation of 95 units. The cost to place an order is $32.00, and the time from ordering to receipt is four weeks. The annual inventory carrying cost is $0.10 per unit. Find the reorder point necessary to provide a 95 percent service probability.

Answer 1

Answer: 1,425.2 units

Explanation:

Recorder point :

Lead time = 4 weeks

Expected demand during this time is

= No. of weeks × Weekly demand

= 4 × 273

= 1,092 units

Standard Deviation = 95 units

Standard Deviation for the 4 week period is:

$= 85\ units\times 4^{0.5}$

= 170 units

At the 95% probability level, the z-score is 1.96 (From the Z- table)

Safety Stock = Z-value × Standard Deviation for the 4 week

                     = 1.96 × 170 units

                     = 333.2 units

Recorder point = Safety stock + expected demand during the time period so,

                          =  333.2 units  + 1,092 units

                          = 1,425.2 units