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. If the firm decides to reduce its cycle-service level to 95%, what is the new reorder point if all other parameters remain the same for this product?
A) greater than 4,500 units
B) greater than 3,500 units but less than or equal to 4,500 units
C) greater than 2,500 units but less than or equal to 3,500 units
D) greater than 1,500 units but less than or equal to 2,500 units
E) greater than 0 but less than or equal to 1,500 units

Question

Quizplus · Accepted Answer

When reducing the cycle-service level to 95%, we need to use a lower z-value to determine the safety stock. With a cycle-service level of 95%, the z-value is 1.65 rather than 2.33. This leads to a lower safety stock and a lower reorder point. Using the formula: Reorder point = (Demand during lead time) + Safety stock, we can calculate the new reorder point. The demand during lead time is 100,000/250 * 5 = 2,000 units. The new safety stock is 1.65 * 50 * √5 = 183 units. Therefore, the new reorder point is 2,000 + 183 = 2,183 units, which is greater than 1,500 units but less than or equal to 2,500 units. The correct answer is B.

Scenario 9.12 Demand = 100,000 Units/year