Question

Use the following for this question and the next one. You will need your answer for this question to complete the next question. Hampton Inn hotel uses an average of 600 sheets during reorder time (from placing order to arrival). This demand is normally distributed with a standard deviation of 35 sheets. The hotel expects a 97% service level to satisfy high quality standards. What is the safety stock required

Answer 1

Answer:

safety stock = 76 units

Explanation:

z-score for 97% = 2.17009

standard deviation of lead time = 35/600 = 5.83%

average demand during lead time = 600 sheets

safety stock = Z-score x standard deviation of lead time x average demand during lead time

safety stock = 2.17009 x 0.058333 x 600 = 75.95 units ≈ 76 units

Safety stock refers to the number of extra units that a company needs to have in inventory in order to avoid stockouts.