Question

Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence, as slowly) as possible. Central Perk uses 80 filters a day with a standard deviation of 5 days. It would be disastrous if they ran out of these filters, years ago customers caught them using paper towels from the men's room and business suffered. They have set their service level at 99% in hopes of avoiding a similar situation. It takes a fortnight (14 days) to receive a shipment and the standard deviation of the shipping time is two days. What is their reorder point?
A.​1,490 filters

B.​1,120 filters

C.​1,515 filters

D.1,450 filters

Answer 1

Answer:

1,360 filters

Explanation:

To avoid the material / inventory shortage a company calculates the a level of inventory at which a new order will be placed. It consider the lead time to deliver an order.

Daily usage = 80 filters

Delivery lead time = 14 days

Reorder Point formula = ( Daily usage x Lead time ) + Safety Stock

We need safety stock to calculate the reorder level. Safety stock is the level of inventory which is maintained to eliminate the risk of stock out of inventory.

Safety stock = (Maximum daily usage x Maximum lead time in days) – (Average daily usage x Average lead time in days).

Safety stock = ( (80+5) filters x (14+2) days ) – ( 80 filters x 14 days )

Safety stock = 1,360 filters - 1,120 filters = 240 filters

Placing values in Reorder point formula

Reorder Point formula = ( 80 x 14 ) + 240 = 1360 filters