Problem 3: Periodic Review System (6 points) Cell phone cases aren\'t the most c

Question

Problem 3: Periodic Review System (6 points) Cell phone cases aren't the most critical product the Verizon store sells. Therefore, they use a monthly periodic review system to manage this inventory. Assume the reorder period plus lead time is one month. Below is the sales data for cell phone cases for the last 5 months. June'17 Jul17 2392 Month Oct'17 1159 1207 a) b) What is the company's average monthly demand for cell phone cases? (2 points) Assume the monthly standard deviation of demand is 612.3 cell phone cases and the company wants to be in stock at least 95% of the time, what is the appropriate restocking level? (2 points) c f there are currently 1350 cell phone cases on hand when an order is placed, how many cell phone cases should be ordered? (2 points)

Explanation / Answer

a) Average monthly demand = (2203+2392+1194+1207+1159)/5 = 1631

b) Re Order Point = Average Monthly demand*(Lead Time+ Reorder period) + z*Standard deviation*sqrt(Lead Time+ Reorder period)

Lead Time+ Reorder period = 1 month

Standard deviation = 612.3

z for 95% service level = 1.64 (Using NORMSINV function in excel)

= 1631*1 + 1.64*612.3*sqrt(1) = 2635.17

c) If current level is 1350, cases to order should be = 2635.17 - 1350 = 1285.17. Upper round off to 1286

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