Answer:
a. 261 units
b. 661 units
c. 936 units
Explanation:
Safety stock, average inventory, and the order point can be calculated as follows according to their formulas.
DATA
Weekly Demand = 225 units
Lead time = 3 weeks
Annual Demand = 225 units x 52 weeks = 11,700 units
sigma = 175
Order Quantity Q = 800
Solution
No of orders per year = Annual demand/order quantity
No of orders per year= 11700/800
No of orders per year= 14.625 orders
Service level = (no of orders-1)/no of orders
Service level = (14.625-1)/14.625
Service level = 93.16 %
Saftey factor for 93.16 is 1.49
Saftey stock = 1.49 \sigma
Saftey stock = 1.49 * 175
Saftey stock = 260.75 OR 261 units
Average inventory = Q/2 + saftey stock
Average inventory = 800/2 + 261
Average inventory = 400 + 261
Average inventory = 661
Order point = Demand during the lead time + safety stock
Order point= 225 x 3 + 261
Order point= 936 units
