Suppose management decides it wants to offer a 95% service level.That is,Cooper Company is willing to experience a stock-out probability of 5% during the order cycle.How much safety stock should be carried?
A)33 units
B)35 units
C)46 units
D)25 units

Question

Quizplus · Accepted Answer

The safety stock can be calculated using the formula: Safety stock = (service level factor) x (standard deviation of demand during lead time).
Assuming a normal distribution and a lead time of one week, the service level factor for a 95% service level is 1.65. The standard deviation of demand during lead time can be derived from the demand data. If we assume a standard deviation of 5 units, then the safety stock would be 1.65 x 5 = 8.25, which rounds up to 9 units. Therefore, the total safety stock required would be 9 x 4 (for 4 weeks of demand) = 36 units. However, the company already has 3 units of safety stock on hand. Thus, the additional safety stock needed is 36 - 3 = 33 units.

Suppose Management Decides It Wants to Offer a 95% Service