Answer:
2.94% (about 3%)
Explanation:
Average daily usage = 45 pounds
Lead time = 9 days
If we calculate the Reorder point using the above we get:
Reorder point = Lead time x Average daily usage = 45 x 9 = 405 pounds
However, the manager was reordering lubricant when the amount on hand reaches 422 pounds
Hence the safety stock = 422 - 405 = 17 units
Reorder point is calculated as: Lead time*demand per unit time=45*9=405
In the course of the lead time, we have a standard deviation calculated as:
Daily standard deviation x (Lead time)^0.5
= 3 x (9^0.5) = 3 x 3 = 9
Hence the risk of stock out = (422 - 405)/9 x Standard Deviation = 1.89 x S.D
Using the normal distribution curve, with the z-value of 1.89, this means that the probability of stock out = 0.0294 = 2.94%
Approximately 3%.
