Question 4 ONLY 3. Weekly demand for Motorola cell phones at a Best Buy store is

Question

Question 4 ONLY

3. Weekly demand for Motorola cell phones at a Best Buy store is normally distributed, with a mean of 300 and a standard deviation of 200. Motorola takes two weeks to supply a Best Buy order. Best Buy is targeting a CSL of 95 percent and monitors its inventory continuously. How much safety inven- tory of cell phones should Best Buy carry? What should its ROP be? 4. Reconsider the Best Buy store in Exercise 3. The store man- ager has decided to follow a periodic review policy to man- age inventory of cell phones. She plans to order every three weeks. Given a desired CSL of 95 percent, how much safety inventory should the store carry? What should its OUL be?

Explanation / Answer

Lead time (L) = 2 weeks

Periodic review (P)= 3 weeks

Z at 95% CSL = 1.6449

Standard deviation over review period and Lead time = sqrt(P+L) * std deviation = sqrt (5) * 200 = 447.21

Safety stock inventory = Z (95% level) * Standard deviation over review period + Lead time

Safety stock inventory = 1.6449 * 447.21 = 735.6

Expected mean demand over P+L period = 300 * (P+L) = 300 * 5 = 1500

OUL = Total demand over (P+L) Period = mean demand + safety stock = 1500 + 735.6 = 2235.6

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