Question

Weekly demand for a particular item averages 30 units, with a standard deviation of 4. This item is managed with a fixed-order-interval model. The order interval is three weeks, and this item has a certain lead time of one week. The desired service level is 97.5 percent. Assume that it is now time to place another order, and there are 43 units on hand. How many units should be ordered?

Answer 1

Answer:  93 units should be ordered.

Step-by-step explanation:

Since we have given that

Standard deviation = 4

Average = 30 units

Number of weeks in order interval = 3

Desired service level = 97.5%

Number of units on hand = n = 43

So, the expected  value would be

$E[x]=30\times (3+1)+1.96\times 4\sqrt{3+1}-43\\\\E[x]=30\times 4+1.96\times 4\times 2-43\\\\E[x]=120+15.68-43\\\\E[x]=92.68\approx 93$

Hence, 93 units should be ordered.