The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50.The lead-time for the component is 9 days.If a service level of 95% is desired then the company's reorder point for this component is approximately
A)3,785 units.
B)4,500 units.
C)4,627units.
D)4,747units.

Question

Quizplus · Accepted Answer

To calculate the reorder point, use the formula: Reorder Point = (Average Daily Demand * Lead Time) + (Z-score * Standard Deviation of Demand * sqrt(Lead Time)). For a 95% service level, the Z-score is 1.645. Thus, Reorder Point = (500 * 9) + (1.645 * 50 * sqrt(9)) = 4,500 + 739.25 ≈ 4,747 units.

The Demand for an Electronic Component Is Normally Distributed with an Average