A drugstore uses fixed-order cycles for many of the items it stocks. The manager
ID: 333253 • 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 14 days, and lead time is 3 days. Average demand for one item is 68 units per day, and the standard deviation of demand is 12 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the following table.
Determine the order quantities for cycles 1, 2, and 3: (Round your answers to the nearest whole number)
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 14 days, and lead time is 3 days. Average demand for one item is 68 units per day, and the standard deviation of demand is 12 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the following table.
Use Table.Explanation / Answer
Given are following data :
Order interval = 14 days
Lead time = 3 days
Therefore, Protection period = P = Order interval + Lead time = 14 + 3 = 17 days
Required service level = 0.98
Corresponding Z value = NORMSINV ( 0.98 ) = 2.0537
Standard deviation of daily demand = 12 units
Therefore, standard deviation of demand during protection period
= Standard deviation of daily demand x square root ( Protection period )
= 12 x square root ( protection period )
= 12 X square root ( 17 )
= 12 x 4.123
= 49.476
Therefore, safety stock = Z value x standard deviation of demand during protection period = 2.0537 x 49.476 = 101.60 ( 102 rounded to nearest whole number )
Reorder point = Daily demand x Protection period + safety stock = 68 x 17 + 102 = 1156 + 102 = 1258
Order quantity = Reorder point – Quantity on hand
Accordingly, please find below required answers :
CYCLE
UNITS
1
1212
2
1248
3
1159
CYCLE
UNITS
1
1212
2
1248
3
1159
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