The inventory level of a chemical is managed according to a fixed order quantity
ID: 429327 • Letter: T
Question
The inventory level of a chemical is managed according to a fixed order quantity model (reorder point method) with safety stock.
The daily demand is random, with a mean of 40 gallons and a standard deviation of 4 gallons. The lead time is 9 days. The probability of not stocking out during the lead time should be 90% (hint: corresponding Z-value is 1.28).
What is the amount of safety stock included in the reorder point amount? (provide answer to two decimal places; please note that what is asked is the "safety stock", not the "reorder point")
Explanation / Answer
Safety Stock can be computesd as
note : In the given question standard deviation of lead time is not given . therefore I have expalaind the procedure to solve the safety stock, if standard deviation would be given thn answer could be solve
mean (gallon) 40 standard deviation(gallon) 4 lead time (days) 9 probabilty 90% Z=1.28 0.3997 safety stock = Z * (average lead time *(standard deviation of demand) 2 + average demand 2 +standard devaition lead time 2 )Related Questions
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