Question

Demand is variable and the company wants to build a safety stock into R. The average daily demand is 15, the lead time is 3 days, Z-value is 2, and the standard deviation of demand during lead time is 5. Items purchased from a vendor cost $300 each. The firm operates 350 days. If it costs $10 every time an order is placed for more units, and the storage cost is $5 per unit per year. What is the reorder point

Answer 1

Answer:

Average daily demand (d) = 15

Lead time (L) = 3 days

Value of Z = 2

Standard deviation of demand during lead time = 5

Reorder point = d × L + (Z × standard deviation of demand during lead time)

= 15 × 3 + (2 × 5)

= 45 + 10

= 55