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.If the firm decides to increase its cycle-service level to 90%,what is the new reorder point if all other parameters remain the same for this product?
A)greater than 550,000 units
B)greater than 400,000 units but less than or equal to 550,000 units
C)greater than 250,000 units but less than or equal to 400,000 units
D)greater than 150,000 units but less than or equal to 250,000 units
E)greater than 0 but less than or equal to 150,000 units

Question

Quizplus · Accepted Answer

The reorder point is calculated using the formula: ROP = (Demand * Lead Time) + (Z * √(Lead Time * (Standard Deviation of Demand)^2 + (Demand^2 * Standard Deviation of Lead Time^2))). For a 90% cycle-service level, Z is approximately 1.28. Plugging in the values, the ROP is greater than 550,000 units.

Scenario 9.12 Demand = 50,000 Units/week