During the spring, the demand for electric fans at a large home-improvement stor
ID: 3358559 • Letter: D
Question
During the spring, the demand for electric fans at a large home-improvement store is quite strong. The store tracks inventory to order a new shipment of fans when the inventory level falls to the "reorder point". If the demand exceeds the inventory, the store loses sales. The manager would like to reduce the probability of the shortage to 5%. (This policy is called the "95% service level" in operations management.) Assume that the demand is normally distributed with a mean of 500 and a standard deviation of 100. Find the reorder point.
Explanation / Answer
= 500 = 100
z = 1.645
x = + z
= 500 + 1.645 * 100
= 664.5.
The reorder point is 664.5.
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