Scenario 9.12
Demand = 50,000 units/week
Standard deviation of weekly demand = 15,000 units
Average lead time = 8 weeks
Standard deviation of lead time: 3 weeks
Cycle-service level = 80%
A continuous review system is used to control inventory.
A normal distribution table is appended to this exam.
-Use the information in Scenario 9.12.What is the standard deviation of demand during lead time?
A)greater than 0 but less than or equal to 100,000 units
B)greater than 100,000 units but less than or equal to 200,000 units
C)greater than 200,000 units but less than or equal to 300,000 units
D)greater than 300,000 units

Question

Quizplus · Accepted Answer

The standard deviation of demand during lead time can be calculated by multiplying the standard deviation of weekly demand by the square root of the lead time. Thus, the standard deviation of demand during lead time is 15,000 x sqrt(8) = 42,426. Since 80% cycle-service level is given, we need to look up the z-value from the normal distribution table, which is 0.84. Then we calculate the safety stock as z-value x standard deviation of demand during lead time. Thus, the safety stock is 0.84 x 42,426 = 35,626. Therefore, the reorder point is demand during lead time plus safety stock, which is 50,000 x 8 + 35,626 = 435,626. Based on this analysis, the standard deviation of demand during lead time is greater than 100,000 units but less than or equal to 200,000 units, which is choice B.

Scenario 9.12 Demand = 50,000 Units/week