A drugstore uses fixed-order cycles for many of the items it stocks. The manager
ID: 328223 • Letter: A
Question
A drugstore uses fixed-order cycles for many of the items it stocks. The manager wants a service level of .98. The order interval is 11 days, and lead time is 3 days. Average demand for one item is 62 units per day, and the standard deviation of demand is 5 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the following table.
Cycle On Hand 1 37 2 9 3 92 Determine the order quantities for cycles 1, 2, and 3: (Round your answers to the nearest whole number)Cycle Units 1 2 3
Explanation / Answer
Given are following data :
Order interval = 11 days
Lead time = 3 days
Therefore, Protection period = P = Order interval + Lead time = 11 + 3 = 14 days
Required service level = 0.98
Corresponding Z value = NORMSINV ( 0.98 ) = 2.0537
Standard deviation of daily demand = 5 units
Therefore, standard deviation of demand during protection period
= Standard deviation of daily demand x square root ( Protection period )
= 5 x square root ( protection period )
= 5 x Square root ( 14)
= 5 x 3.741
= 18.705
Therefore, safety stock = Z value x standard deviation of demand during protection period = 2.0537 x 18.705 = 38.414 ( 39 rounded to next higher whole number )
Reorder point = Daily demand x Protection period + safety stock = 62 x 14 + 39 = 868 + 39 = 907
Order quantity = Reorder point – Quantity on hand
Accordingly, please find below required answers :
CYCLE
UNITS
1
870
2
898
3
815
CYCLE
UNITS
1
870
2
898
3
815
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