94. A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125. The product's lead time is 4 weeks. Currently, the reorder point for this product is 8,200. If the company would like to have a service level of 95% for this product then
A) it must decrease its safety stock by approximately 412 units.
B) it must decrease its safety stock by approximately 212 units.
C) it must increase its safety stock by approximately 412 units.
D) it must increase its safety stock by approximately 212 units.

Question

Quizplus · Accepted Answer

To achieve a 95% service level, the reorder point should be adjusted to account for the desired service level. The z-score for 95% is 1.645. The current reorder point is 8,200, which implies a safety stock of 200 units (8,200 - 8,000). The required safety stock for a 95% service level is 1.645 * 250 (standard deviation of demand during lead time), which is approximately 411.25 units. Therefore, the safety stock should be increased by approximately 212 units (411.25 - 200).

94 a Product's Usage Is Normally Distributed with a Weekly