Question

Average daily demand is 50 units and the standard deviation is 5 units. Lead time is 2 days and the service level is 95%. A periodic review system is used where the time between orders is 7 days. What should the target level be set at

Answer 1

Answer:

475

Explanation:

The computation of the target level that should be set is given below:

= demand per day × (lead time + review period)+ safety stock

where

safety stock is

= z value at service level × standard deviation × √(review period + lead time)

= 1.64 × 5 × √(7 + 2)

= 24.67

Now the target level should be

= 50 × (7 + 2) + 24.67

= 474.67

= 475