Average daily demand for a product is normally distributed with a mean of 5 units and a standard deviation of 1 unit. Lead time is fixed at four days
(a) What is the reorder point if there is no safety stock?
(b) What is the reorder point if the service level is 80 percent?
(c) How much more safety stock is required if the service level is raised from 80 percent to 90 percent?
This problem requires formula 12-15, since demand is variable but lead time is constant.
(a) With no safety stock, the reorder point is D × L = 5 × 4 = 20 units.
(b) For an 80 percent service level, Z is 0.84. The reorder point is
ROP = DL + Z × σd × = 5 × 4 + 0.84 × 1 × = 20 + 1.7 = 21.7.
(c) At 90 percent service, Z = 1.28. Safety stock is 1.28 × 1 × = 2.6 , an increase of 2.6 - 1.7 = 0.9 units.
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