In setting the reorder point for an item with variable demand,a service level of 95% will imply which of the following?
A)Stockouts may occur only 5 times during the phase of 100 inventory cycles.
B)5% of the supplier shipments will be late.
C)There is a 0.05 probability that the forecasted demand is not accurate.
D)The forecast demand will be accurate 95% of the time.

Question

Quizplus · Accepted Answer

A service level of 95% means that there is only a 5% chance of stockout during the lead time. Therefore, option A correctly represents this as it reflects the number of stockouts that may occur during 100 inventory cycles. The other options are incorrect as they do not relate to the concept of service level in inventory management.

In Setting the Reorder Point for an Item with Variable