The Franklin County Hospital is currently using a continuous review system to control its inventory. One of the items in inventory is an elastic band. The average demand for this item is 200 boxes per week, and the standard deviation in weekly demand is 50 boxes. If the lead time is 3 weeks and the hospital wants a 99 percent cycle- service level, what is the reorder point for this item? A normal table is appended to this exam.
A) less than or equal to 650 boxes
B) greater than 650 boxes but less than or equal to 750 boxes
C) greater than 750 boxes but less than or equal to 850 boxes
D) greater than 850 boxes

Question

Quizplus · Accepted Answer

The reorder point is calculated as the average demand during lead time plus the safety stock. Average demand during lead time is 200 boxes/week * 3 weeks = 600 boxes. For a 99% service level, the z-score is approximately 2.33. Safety stock is calculated as z-score * standard deviation of demand during lead time, which is 2.33 * (50 * sqrt(3)) ≈ 201. Therefore, the reorder point is 600 + 201 = 801 boxes, which falls in the range of greater than 750 boxes but less than or equal to 850 boxes.

The Franklin County Hospital Is Currently Using a Continuous Review