A newspaper publisher uses roughly 870 feet of baling wire each day to secure bu

Question

A newspaper publisher uses roughly 870 feet of baling wire each day to secure bundles of newspapers while they are being distributed to carriers. The paper is published Monday through Saturday. Lead time is six workdays. What is the appropriate reorder point quantity, given that the company desires a service level of 95 percent, if that stockout risk for various levels of safety stock is as follows: 1,500 feet, .10; 1,800 feet, .05; 2,100 feet, .02; and 2,400 feet, .01?

Appropriate reorder point ft

Explanation / Answer

Appropriate reorder point 7,020 ft
Daily usage = 870 ft./day Lead time = 6 days
Service level desired: 95 percent. Hence, risk should be 1.00 – .95 = .05
This requires a safety stock of 1,800 feet.
ROP = expected usage + safety stock= 870 ft./day × 6 days + 1,800 ft. = 7,020 ft

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