Question

The Paint Supply Store franchise sells an average of 52 gallons of Yellow Paint every week (for 52 weeks per year, Standard Deviation of the Demand = 6 gallons). They purchase Yellow Paint from their supplier at a price of $3.00 per gallon. It takes 1.75 weeks to receive an order from the supplier. Administrative costs for Ordering paint have been estimated to be $25 per order. Holding Costs = 30% of the purchase price per gallon per year. How much Safety Stock should the company hold to have a Service Level of 99.0%?

Answer 1

Answer: 18.49

Explanation:

The amount of safety stock that the company should hold to have a Service Level of 99.0% will be calculated thus:

The following information can be depicted from the question:

Service level = 99%, corresponding z value = 2.33

Lead time = 1.75

Standard deviation = 6

Safety stock will now be:

= Z × ✓L × SD

where

Z = z value = 2.33

L = lead time = 1.75

SD = standard deviation = 6

Therefore, safety stock will be:

= Z × ✓L × SD

= 2.33 × ✓1.75 × 6

= 2.33 × 1.3229 × 6

= 18.49