The Kharn Corporation orders 5 units of an item every day. Daily demand of this

Question

The Kharn Corporation orders 5 units of an item every day. Daily demand of this item averages 5 units and is distributed as follows: Demand 1 2 4 5 6 7 9 Probability: 0.01 0.04 0.1 0.2 0.3 0.2 0.1 0.04 0.01 a). If management sets the reorder point at 7 units, what is the service level? b). Assuming 200 workdays (annual demand -1000), how many units of annual demand cant be supplied out of inventory? c).What is the average number of stockouts (stockout units) per order cycle? d). What is the total number of stockout units in a year? Please Show all work.

This question has already been posted once without an answer. I was hoping someone could help me out with this. Thank you in advance!

Explanation / Answer

a) Probability of daily demand being more than 7 = 0.04+0.01 = 0.05 (when demand is 8 or 9)

Therefore, service level = 1 - 0.05 = 0.95

b) With reorder point at 7, shortage occurs when daily demand is more than 7. So, expected shortage per day = (8-7)*.04 + (9-7)*.01 = 0.06

Average number of stockout units per order cycle = 0.06

Units of annual demand that can't be supplied = 0.06*200 = 12 units

c) as calculated in part b, Average number of stockout units per order cycle = 0.06

d) This is same as part b, Total number of stockouts units in a year = 0.06*200 = 12 units

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.