A company wants to determine its reorder point (R).Demand is variable and they want to build a safety stock into R.If the average daily demand is 12,the lead time is 5 days,the desired "z" value is 1.96 and the standard deviation of usage during lead time is 3,which of the following is the desired value of R?
A)About 6
B)About 16
C)About 61
D)About 66
E)About 79

Question

Quizplus · Accepted Answer

First, we need to calculate the safety stock (SS) using the formula:
SS = z * σ * sqrt(LT)
where
z = 1.96 (given)
σ = 3 (given)
LT = 5 days (given)

SS = 1.96 * 3 * sqrt(5) ≈ 8.36

Next, we can calculate the reorder point using the formula:
R = average daily demand * lead time + safety stock
R = 12 * 5 + 8.36 ≈ 68.36

However, since we want to round up to the nearest whole number, the desired value of R is about 66 (option D).

A Company Wants to Determine Its Reorder Point (R)