Management states that they will tolerate one stockout every year for a specific item. If 10 orders are placed for the item each year the service level desired is:
A) 80%
B) 85%
C) 90%
D) 95%
E) none of the above

Question

Quizplus · Accepted Answer

To calculate the service level, we need to use the formula:

Service level = 1 - (number of stockouts / number of orders)

We know that management will tolerate one stockout every year, so the number of stockouts is 1. We also know that 10 orders are placed for the item each year.

Thus, the service level can be calculated as:

Service level = 1 - (1/10)
Service level = 0.9 or 90%

Therefore, the desired service level is 90%, which matches with option C.

Management States That They Will Tolerate One Stockout Every Year