A store has annual average daily demand rate of 16 units with a standard deviation of 2 units,and the time between orders is 90 days and the lead time for it to receive an order from its supplier is 20 days,if the supplier visits the store and there are 6 units of inventory in stock,the store's order size for a 95% service level is approximately
A)3,268.6 units
B)1,488.6 units
C)1,788.6 units
D)2,346.6 units

Question

Quizplus · Accepted Answer

To find the store's order size for a 95% service level, we need to use the periodic review system formula:

Order point = (average daily demand x lead time) + safety stock

Safety stock = z-score x standard deviation of demand during lead time

where the z-score for a 95% service level is 1.65.

First, we need to convert the time between orders and the lead time into the same time unit, say days. Since the time between orders is 90 days, we have:

T = 90 days

And since the lead time is 20 days, we have:

L = 20 days

Next, we can calculate the order point:

Order point = (16 units/day x 20 days) + (1.65 x 2 units/day x sqrt(20 days))

Order point = 320 units + 6.6 units

Order point = 326.6 units

Finally, we subtract the current inventory level from the order point to get the order size:

Order size = Order point - Inventory level

Order size = 326.6 units - 6 units

Order size = 320.6 units

Rounding the order size to the nearest unit, we get:

Order size = 321 units

Therefore, the best choice is C, 1,788.6 units.

A Store Has Annual Average Daily Demand Rate of 16