Consider a periodic review system, where orders are placed every 12 days. The fi
ID: 3220205 • Letter: C
Question
Consider a periodic review system, where orders are placed every 12 days. The firm strives to provide a 97.5% cycle service level. Demand averages 300 units per day, and the standard deviation of demand per day is 64 units. Lead time is 18 days.
Consider a periodic review system, where orders are placed every 12 days. The firm strives er a to provide a 97.5% cycle service level. Demand averages 300 units per day, and the standard deviation of demand per day is 64 units. Lead time is 18 days a. How many units of safety stock should be held? b. What should the target inventory level (order-up-to level be? c. Suppose that it is time to review the item. There are 170 units in inventory, and there is an outstanding backorder for 300 units. An order for 188 units is on the way. How many units should be ordered now?Explanation / Answer
Solution:
a) Safety Stock SS = z*SD(RP+L)
Z= NORMSINV(Probability) = NORMSINV(0.975) = 1.96
So SS = 1.96*64*Sqrt(12+18) = 687.06 or 688 units
b) TIL = d*(RP+L) + SS = 300*(12+18) + 688 = 9,688 units
RP is review period = 12 days
L is lead time = 18 days
c) TIL = 9688
Avge On Hand Inventory = TIL – dL = 9688 – 300*18 = 4288 units
So Units ordered = 4288 – (170+300+188) = 3630 units
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