A specific product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approxima
tely) provides a 95% service level? A) 41 B) 55 C) 133 D) 140 E) 165
1 answer:
Answer: A. 41 units
Explanation:
Safety Stock refers to inventory that a company holds in case certain factors cause them to run out of goods to sell.
It is calculated by the following formula;
Safety Stock = Lead time factor * Service factor * Standard Deviation
The desired service factor for a 95% service level as shown in the attached table is, 1.64.
Assume a 1 month lead time factor.
Safety Stock = 1 * 1.64 * 25
= 41 units
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