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

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.

Quizplus · Accepted Answer

The reorder point is the sum of the average demand during the lead time and the safety stock. The average demand during the lead time is 2,000 units * 4 weeks = 8,000 units. The safety stock is the z-score for the desired service level multiplied by the weekly standard deviation. The z-score for a service level of 90% is 1.28. Therefore, the safety stock is 1.28 * 125 units = 160 units. The reorder point is 8,000 units + 160 units = 8,160 units.

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