13. given This is skill-building exercise. You should provide formulas. steps, o

Question

13. given This is skill-building exercise. You should provide formulas. steps, or reasons to support your solutions, You Must show how did you reach every number. Submissions with only the final solutions will not be The daily demand for a compact car at a car dealer in Lexington is normally distributed with a mean of 1.6 car and a standard deviation of 0.4 car. The lead time to receive an order from the car manufacturer is 15 days. The sales manager is wiling to accept no more than 2 percent risk of stockout during lead time. Find the reorder point. How much of this is safety stock? What is the service level? redit. BIUAac | !:-.. A-y.ES

Explanation / Answer

Given, risk of stock out = 2%

Therefore, Service level = 100 percent – Risk of stock out = 100 % - 2% = 98 %

Given,

Standard deviation of daily demand = 0.4 cars

Lead time to receive an order from car manufacturer = 15 days

Therefore, Standard deviation of demand during lead time

= Standard deviation of daily demand x Square root ( Lead time)

= 0.4 x Square root ( 15 )

= 0.4 x 3.872

= 1.548

Z value corresponding to service level of 98% = NORMSINV ( 0.98) = 2.0537

Therefore,

Safety stock = Z value x Standard deviation of demand during lead time = 2.0537 x 1.548 = 3.179 ( 3 rounding to nearest whole number )

Reorder point = Average daily demand x Lead time + safety stock = 1.6 x 15 +3 = 24 + 3 = 27

SERVICE `LEVEL = 98 %

SAFETY STOCK = 3 CARS

REORDER POINT = 27 CARS

SERVICE `LEVEL = 98 %

SAFETY STOCK = 3 CARS

REORDER POINT = 27 CARS

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