Scenario 9.12
Demand = 100,000 units/year
Number of days per year = 250 weeks
Standard deviation of weekly demand = 50 units
Average lead time = 5 days
Standard deviation of lead time: 2 days
Cycle-service level = 99%
A continuous review system is used to control inventory.
-Use the information in Scenario 9.12. What is the standard deviation of demand during lead time?
A) greater than 0 but less than or equal to 500 units
B) greater than 500 units but less than or equal to 1,500 units
C) greater than 1,500 units but less than or equal to 2,500 units
D) greater than 2,500 units

Question

Quizplus · Accepted Answer

To find the standard deviation of demand during lead time, we need to use the formula:

SD of demand during lead time = sqrt[(Lead time)^2*(SD of weekly demand)^2 + (Average demand per day)*(SD of lead time)^2]

Here, the average demand per day is calculated as Demand/Number of days per year = 400 units/day.

Plugging in the values, we get:
SD of demand during lead time = sqrt[(5 days)^2*(50 units)^2 + (400 units/day)*(2 days)^2]
SD of demand during lead time = 986.74 units

Therefore, the standard deviation of demand during lead time is greater than 500 units but less than or equal to 1,500 units, which is option B.

Scenario 9.12 Demand = 100,000 Units/year