The annual demand for a product is 1,000 units.The company orders 200 units each time an order is placed.The lead-time is 6 days.There are 250 working days per year.If the reorder point is 50,what safety stock are they using?
A)22
B)4
C)26
D)28
E)None of the above

Question

Quizplus · Accepted Answer

Reorder point = (Demand during lead time) + Safety stock

Demand during lead time = Daily demand x lead time = (1000/250) x 6 = 24 units

Reorder point = 24 + 50 = 74 units

Each order is for 200 units, so safety stock = Order quantity - Reorder point = 200 - 74 = 126 units

However, safety stock should be based on variability in demand and lead time. Without additional information, we cannot determine if the safety stock of 26 units is appropriate.

The Annual Demand for a Product Is 1,000 Units