Joe's Donut Hole wishes to estimate an appropriate reorder point for cases of a raw material used in making donut icing. The average daily demand is 2 cases. The lead time for replenishment orders is 10 days with an estimated lead time demand standard deviation of 1 case. For a 95% service level, what should the reorder point for this item be?

Question

Quizplus · Accepted Answer

To calculate the reorder point, we need to consider the lead time demand, safety stock, and average daily demand. We can use the formula: Reorder Point = (Lead Time Demand x Z-score for desired service level) + Safety Stock.

Lead Time Demand = Average daily demand x Lead time = 2 cases/day x 10 days = 20 cases
Z-score for a 95% service level = 1.64 (from standard normal distribution table)
Safety Stock = Z-score x Standard deviation of lead time demand = 1.64 x 1 case = 1.64 cases

Therefore, Reorder Point = (20 cases x 1.64) + 1.64 cases = 21.64 cases

Hence, the best choice is B.

Joe's Donut Hole Wishes to Estimate an Appropriate Reorder Point