The annual demand for a product is 15,900 units. The weekly demand is 306 units

Question

The annual demand for a product is 15,900 units. The weekly demand is 306 units with a standard deviation of 80 units. The cost to place an order is $33.50, and the time from ordering to receipt is eight weeks. The annual inventory carrying cost is $0.10 per unit.

a. Find the reorder point necessary to provide a 99 percent service probability. (Round your answer to the nearest whole number.)

Suppose the production manager is asked to reduce the safety stock of this item by 60 percent. If she does so, what will the new service probability be? (Round your answer to 3 decimal places.)

Suppose the production manager is asked to reduce the safety stock of this item by 60 percent. If she does so, what will the new service probability be? (Round your answer to 3 decimal places.)

Explanation / Answer

a)

Annual Demand = 15900

Weekly demand = 306

Standard Deviation = 80

Holding Cost = $ 0.10

Ordering Cost = $ 33.50

Lead time = 8 weeks

Z at 99% = 2.33

Reorder point = (Weekly Demand* Lead time) + Safety stock

Reorder point = (306 * 8) + (2.33*80*Sqrt(8)) = 2448 + 527.22 = 2975.22 = 2975

b)

Safety stock to be reduced by 60%

New safety stock = (0.6*527.22) = 316.332

Now,

Safety Stock = z * Standard Deviation * Sqrt(Lead Time)

316.332 = z * 80 * Sqrt(8)

316.332 = z * 226.2742

Z = 1.398 = approx 92%

New service probability will be 92 percent.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.