Mungo Pet Supplies makes cat trees for several pet store chains. They order fasteners for the trees from a foreign supplier (lead time is 12 days with a lead time standard deviation of 3 days). Daily demand is estimated to 400 fasteners with a standard deviation of 50 fasteners per day. For a 95% service level, what is the reorder point?

Question

Quizplus · Accepted Answer

The reorder point is calculated using the formula: Reorder Point = (Average Daily Demand * Lead Time) + (Z-score * Standard Deviation of Demand During Lead Time). For a 95% service level, the Z-score is 1.65. Average daily demand is 400 fasteners, and lead time is 12 days, so the average demand during lead time is 4800 fasteners. The standard deviation of demand during lead time is calculated as √(Lead Time) * Standard Deviation of Daily Demand = √12 * 50 ≈ 173.2. Therefore, the reorder point is 4800 + (1.65 * 173.2) ≈ 6788.

Mungo Pet Supplies Makes Cat Trees for Several Pet Store