Question

In a continuous review inventory system, the lead time for door knobs is 5 weeks. The standard deviation of demand during the lead time is 85 units. The desired cycle-service level is 99 percent. The supplier of door knobs streamlined its operations and (a) reducing the 99 percent cycle-service level?

Answer 1

Answer:

245 units reduction.

Explanation:

What is safety stocks?

Safety stocks can be defined as the extra stock that is been kept by business organizations in order to minimize their risk. One can not successfully say that an amount of a material will be need at a particular period of time by the consumers and this is the reason many companies or industries or business organizations do keep safety stocks in their inventory.

So, let us proceed in to solving the question.

The parameters given in the question are; lead time = 5 weeks, standard deviation of demand during the lead time = 85 units, desired cycle-service level = 99%.

We can calculate the value of units for the Reduction in safety stocks by using the formula below;

Reduction in safety stocks=safety stocks - revised safety stocks.

Reduction in safety stocks = 443 - (2.33 × 85 units × 1 week lead time)

Reduction in safety stocks = (443 - 198) units = 245 units.

Note that 2.33 is from the 99% service level) and the 443 is from the 5 weeks lead time which can be Calculated using; (maximum daily usage × maximum lead time in days) - (average daily usage) × average lead time in days.