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 as: Reorder Point = (Average Daily Demand * Lead Time) + (Z-score * Standard Deviation of Demand During Lead Time). Here, Average Daily Demand = 400, Lead Time = 12 days, Z-score for 95% service level = 1.645, Standard Deviation of Demand During Lead Time = sqrt((Lead Time * Daily Demand Standard Deviation^2) + (Average Daily Demand^2 * Lead Time Standard Deviation^2)). Calculating these gives the reorder point as approximately 7625.

Mungo Pet Supplies Makes Cat Trees for Several Pet Store