Question

Dunstreet's Department Store would like to develop an inventory ordering policy of a 90 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets. Demand for white percale sheets is 4,100 per year. The store is open 365 days per year. Every four weeks (28 days) inventory is counted and a new order is placed. It takes 14 days for the sheets to be delivered. Standard deviation of demand for the sheets is three per day. There are currently 160 sheets on hand. How many sheets should you order

Answer 1

Answer:

344 Sheets

Explanation:

This can be estimated as follows:

D = Demand = 4,100 per year,

d = Daily demand = 4,100/365 = 11.23 sheets

T = Time between orders = four weeks = 28 days

L = Lead time, i.e. time sheets taken to be delivered = 14 days

SDd = Daily demand standard deviation = 3 per day

I = Current Inventory = 160 sheets

P = Service level = 95% (Probability of not stocking out)

From Standard normal distribution, z = 1.64 for 95% Service Level (or 5% Stock out)

SDt + l = SDd * $\sqrt{T+L}$ = 3 * $\sqrt{28 +14}$ = 19.44

Employing the order quantity formula, we have:

Q = Order quantity = D * (T + L) + z * (SDt + l) - I

Substituting for the values, we have:

Q = 11.23 * (28 + 14) + 1.64 * 19.44 - 160

Q = 343.54 = 344 sheets approximately

Therefore, 344 sheets should be ordered.