Table $5.10$
A firm using the periodic review system (P system) reviews the status of an item every 4 weeks. The standard deviation in weekly demand is 60 units. The lead time for the item is 3 weeks, whereas demand averages 200 units per week. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.10. How much safety stock should be held to achieve a 95 percent cycle service level?
A) less than or equal to 270 units
B) greater than 270 but less than or equal to 285 units
C) greater than 285 but less than or equal to 300 units
D) greater than 300 units

Question

Quizplus · Accepted Answer

The safety stock is calculated using the formula: $ SS = Z \times \sigma_d \times \sqrt{T+L} $, where $ Z $ is the Z-score for a 95% service level (1.645), $ \sigma_d $ is the standard deviation of demand, and $ T+L $ is the review period plus lead time. Here, $ \sigma_d = 60 $, $ T = 4 $, and $ L = 3 $. So, $ SS = 1.645 \times 60 \times \sqrt{4+3} = 1.645 \times 60 \times \sqrt{7} \approx 1.645 \times 60 \times 2.645 \approx 261.87 $. Therefore, the safety stock is approximately 262 units, which falls in the range of choice C.

Table 5.105.105.10 A Firm Using the Periodic Review System (P System) Reviews

Table $5.10$ A Firm Using the Periodic Review System (P System) Reviews