A product's usage is normally distributed with a weekly average demand of 2,000 units and a weekly standard deviation of 125.The product's lead time is 4 weeks.Currently,the reorder point for this product is 8,200.If the company would like to have a service level of 95% for this product then
A)it must decrease its safety stock by approximately 412 units.
B)it must decrease its safety stock by approximately 212 units.
C)it must increase its safety stock by approximately 412 units.
D)it must increase its safety stock by approximately 212 units.

Question

Quizplus · Accepted Answer

To achieve a 95% service level, the company needs to calculate the safety stock using the z-score for 95% (approximately 1.645). The current reorder point is 8,200, and the average demand over 4 weeks is 8,000 units (2,000 units/week * 4 weeks). The standard deviation over 4 weeks is 250 (125 * sqrt(4)). The safety stock needed is 1.645 * 250 = 411.25, so the reorder point should be 8,411.25. Therefore, they need to increase safety stock by approximately 212 units (8,411.25 - 8,200).

A Product's Usage Is Normally Distributed with a Weekly Average