If a store has annual average daily demand of 16 units with a standard deviation of 2 units,and the lead time for it to receive an order from its supplier is 20 days,the store's safety stock for a 95% service level is approximately
A)14.8 units
B)10.4 units
C)17.5 units
D)26.1 units

Question

Quizplus · Accepted Answer

The safety stock is calculated using the formula: Safety Stock = Z * σdLT, where Z is the Z-score for the desired service level (1.645 for 95%), σ is the standard deviation of demand, and dLT is the demand during lead time. Here, σdLT = σ * √LT = 2 * √20. Therefore, Safety Stock = 1.645 * 2 * √20 ≈ 14.8 units.

If a Store Has Annual Average Daily Demand of 16