A drugstore uses fixed-order cycles for many of the items it stocks. The manager
ID: 390071 • Letter: A
Question
A drugstore uses fixed-order cycles for many of the items it stocks. The manager wants a service level of .98. The order interval is 12 days, and lead time is 3 days. Average demand for one item is 61 units per day, and the standard deviation of demand is 10 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the following table.
Determine the order quantities for cycles 1, 2, and 3: (Round your answers to the nearest whole number)
A drugstore uses fixed-order cycles for many of the items it stocks. The manager wants a service level of .98. The order interval is 12 days, and lead time is 3 days. Average demand for one item is 61 units per day, and the standard deviation of demand is 10 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the following table.
Use Table.Explanation / Answer
Following details are provided :
Order interval = 12 days
Lead time of delivery = 3 days
Therefore,
Protection interval =P = Order interval + Lead time = 12 + 3 = 15 days
Standard deviation of daily demand = 10 units
Therefore, standard deviation of demand during protection period
= Standard deviation of daily demand x Square root ( Protection interval )
= 10 x square root ( 15 )
= 10 x 3.873
= 38.73
Service level = 0.98
Corresponding Z value for service level of 0.98 = NORMSINV ( 0.98 ) = 2.0537
Therefore ,
Safety stock = z value x standard deviation of demand during protection period = 2.0537 x 38.73 = 79.54 ( 80 rounded to nearest whole number )
Theoretical Reorder point
= Average daily demand x Protection period + Safety stock
= 61 / day x 15 days + 80
= 915 + 80
= 995
Order quantity for each order cycle
= Theoretical reorder point – Inventory on hand
Order quantity for cycle 1 = 995 – 47 = 948
Order quantity for cycle 2 = 995 – 9 = 986
Order quantity for cycle 3 = 995 – 105 =890
Cycle
Units
1
948
2
986
3
890
Cycle
Units
1
948
2
986
3
890
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