Scenario 9.13
Demand = 100,000 units/year
Number of days per year = 250 weeks
Standard deviation of weekly demand = 50 units
Average lead time = 5 days
Standard deviation of lead time: 2 days
Cycle-service level = 99%
A continuous review system is used to control inventory.
A normal distribution table is appended to this exam.
-Use the information in Scenario 9.13.What reorder point should the firm use for this product?
A)greater than 4,500 units
B)greater than 3,500 units but less than or equal to 4,500 units
C)greater than 2,500 units but less than or equal to 3,500 units
D)greater than 1,500 units but less than or equal to 2,500 units
E)greater than 0 but less than or equal to 1,500 units

Question

Quizplus · Accepted Answer

The reorder point is calculated as:Reorder point = Average demand during lead time + Safety stockAverage demand during lead time = Demand per day * Lead timeDemand per day = Demand per year / Number of days per yearDemand per day = 100,000 units / (250 weeks * 7 days/week) = 57.14 unitsLead time = 5 daysAverage demand during lead time = 57.14 units * 5 days = 285.71 unitsSafety stock = Z * Standard deviation of demand during lead timeStandard deviation of demand during lead time = Standard deviation of weekly demand * Square root of lead timeStandard deviation of demand during lead time = 50 units * Square root of 5 days = 111.80 unitsZ = 2.326 for a cycle-service level of 99%Safety stock = 2.326 * 111.80 units = 259.26 unitsReorder point = 285.71 units + 259.26 units = 544.97 unitsTherefore, the reorder point should be greater than 4,500 units.

Scenario 9.13 Demand = 100,000 Units/year