FastElectronics.com sells DVD-RW drive online and manages this item\'s inventory
ID: 335111 • Letter: F
Question
FastElectronics.com sells DVD-RW drive online and manages this item's inventory using a (Q,R) [reorder quantity, reorder point] system. Of particular concern are the Reorder Point and the related Safety Stock level to be kept. They have the following information available. Mean lead time length- 8 (days) Standard deviation of lead time length2 (days-squared) Mean daily demand rate10 units Standard deviation of daily demand rate = 2 units. The company would like to achieve 97.72% of service level (no stock out probability).What would be the appropriate Safety Stock level (units) and Reorder Point (units), respectively then? [Hint: Using the formulas given in lecture notes slide 32 and pages 349-55 of Ballou text] o a. (8, 10) units b. (80, 41.57) units O c. (20.785, 80.00) units o d. (20.785, 121.57) units oe, (41.57, 121.57) unitsExplanation / Answer
Z value for service level 97.72% = NORMSINV ( 0.9772 ) = 1.999
Standard deviation of demand during lead time
= Square root ( Standard deviation of daily demand^2 xMean Lead time + Mean daily demand^2 x Standard deviation of lead time^2)
= Square root ( 2^2 x 8 + 10^2 x 2^2)
= Square root ( 4 x 8 + 100 x 4 )
= Square root ( 432 )
= 20.78
Therefore , Safety stock = Z value x standard deviation of demand during lead time= 1.999 x 20.78 =41.539 ( nearest to 41.57)
Reorder point = Mean daily demand x Mean lead time + safety stock = 10 x 8 + 41.57 = 121.57
APPROXIMATE SAFETY STOCK , REORDER POINT : e ) 41.57, 121.57
APPROXIMATE SAFETY STOCK , REORDER POINT : e ) 41.57, 121.57
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