If daily demand is normally distributed with a mean of 15 and standard deviation of 5, and lead time is constant at 4 days, 90% service level will require safety stock of approximately
A) 7 units.
B) 10 units.
C) 13 units.
D) 16 units.
E) 26 units.

Question

Quizplus · Accepted Answer

We can use the following formula to calculate safety stock:

Safety Stock = Z-value × Standard Deviation of Demand during Lead Time

Here, the Z-value for 90% service level is 1.28 (refer to standard normal distribution table). The standard deviation of demand during lead time can be calculated as follows:

Standard deviation of demand during lead time = Standard deviation of daily demand × Square root of lead time
= 5 × Square root of 4
= 10

Substituting these values in the safety stock formula, we get:

Safety Stock = 1.28 × 10 = 12.8

Rounding it up, safety stock of approximately 13 units is required to achieve 90% service level. Therefore, the correct answer is C.

If Daily Demand Is Normally Distributed with a Mean of 15