The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4.If they have calculated a reorder point of 46.60 units, what service level are they assuming?
A)85 percent
B)90 percent
C)95 percent
D)97.5 percent

Question

Quizplus · Accepted Answer

To calculate the service level, we need to use the formula: reorder point = demand during lead time + safety stock. Since the mean demand during lead time is 40 and the reorder point is 46.60, the safety stock must be 6.60 units. Using the Z-table, we find that the Z-score for a 95% service level is 1.645. Therefore, the safety stock in terms of standard deviations is: 6.60 = 1.645 * 4. Thus, the service level is 95%.

The Demand During the Lead-Time Is Normally Distributed with a Mean