Question

Dunstreet's department store would like to develop an inventory ordering policy of a 95 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 5,000 per year. the store is open 365 days per year. every two weeks (14 days) inventory is counted and a new order is placed. it takes 10 days for the sheets to be delivered. standard deviation of demand for the sheets is five per day. there are currently 150 sheets on hand

Answer 1

Answer: 218.97

Explanation:

Demand(D) = 5000 per year

daily demand(d) = 5000/365 = 13.70

orders interval(t) = 14 days

Lead time(l) = 10 days

Standard deviation(SD) = 5 per day

Current Inventory(I) = 150 sheets

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

From Standard normal distribution,

At 95% Service Level (5% Stock out)

z = 1.64

SDt + l = 5× sqrt(14 + 10) = 24.495

Q = d × (t + l) + z × (SDt + l) - I

Q = 13.70 ×(14 + 10) + 1.64×(24.495) - 150

Q = (13.70 × 24) + 40.17 - 150

Q = 328.8 + 40.17 - 150

Q = 368.97 - 150 = 218.97 sheets

Answer 2

Answer:

219 sheets

Explanation:

D = 5000 per year,

d = daily demand = 5000/365 = 13.70 sheets

T = time between orders (review) = 14 days

L = Lead time = 10 days

σd= Standard deviation of daily demand = 5 per day

I = Current Inventory = 150 sheets Service Level

P = 95% (Probability of not stocking out) q=d(L+D)z σ T+L-1

σ T+L-1= square root (T+L)=5 square root 14+10= 24.495

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

q=13.70*(14+10)+1.64(24.495)-150

= 218.97 →219 sheets