Order interval = T = 28 days Lead time of delivery = L = 7 days Thus Protection
ID: 373522 • Letter: O
Question
Order interval = T = 28 days
Lead time of delivery = L = 7 days
Thus Protection period = P = T + L = 28 + 7 = 35 days
Standard deviation of demand of sheets = 5 /day
Therefore, standard deviation of demand during protection period
= 5 x Square root ( 35 )
= 5 x 5.916
= 29.58
Service level = 98 % ( probability of in-stock 0.98)
Corresponding Z value = NORMSINV ( 0.98) = 2.053
Therefore , safety stock during Protection period
= Z value x Standard deviation of demand during protection period
= 2.053 x 29.58
= 60.72 ( 61 rounded to nearest higher whole number)
Hence, Theoretical reorder point
= average daily demand x Protection period + Safety stock
= Annual demand/365 x 35 + 61
= 4700/365 x 35 + 61
= 450.68 + 61
= 511.68 ( 512 rounded to next higher whole number)
However number of sheets currently in hand = 140
Hence, number of sheets to be ordered = 512 – 140 = 372
ONE SHOULD ORDER 372 SHEETS
ONE SHOULD ORDER 372 SHEETS
Explanation / Answer
Dunstreet's Department Store would like to develop an inventory ordering policy of a 98 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets.
Demand for white percale sheets is 4,700 per year. The store is open 365 days per year. Every four weeks (28 days) inventory is counted and a new order is placed. It takes 7 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 140 sheets on hand.
How many sheets should you order? (Use Excel's NORMSINV() function to find the correct critical value for the given -level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)
Number of sheets ANSWER
VERY IMPORTANT
Number of sheets ANSWER
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