A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125. The lead time for the product is 4 weeks. If the company would like to have a service level of 90% for this product then the reorder point is approximately
A) 8,320 units.
B) 9,218 units.
C) 10,134 units.
D) 11,244 units.

Question

Quizplus · Accepted Answer

The reorder point is the sum of the average demand during the lead time and the safety stock. The safety stock is the product of the standard deviation of demand during the lead time and the z-score corresponding to the desired service level. In this case, the average demand during the lead time is 2,000 units * 4 weeks = 8,000 units. The standard deviation of demand during the lead time is 125 units * 4 weeks = 500 units. The z-score corresponding to a service level of 90% is 1.28. Therefore, the safety stock is 500 units * 1.28 = 640 units. The reorder point is 8,000 units + 640 units = 8,640 units.

A Product's Usage Is Normally Distributed with a Weekly Average