The demand during the lead-time is normally distributed with a mean of 40 and a standard deviation of 4.If they have calculated a reorder point of 46.60 units,what service level are they assuming?

Question

Quizplus · Accepted Answer

To calculate the service level, we need to use the z-value formula: 
z = (reorder point - mean demand during lead-time) / standard deviation of demand during lead-time

Plugging in the values given,
z = (46.60 - 40) / 4
z = 1.65

Looking up the probability of a z-value of 1.65 in a standard normal distribution table, we get 0.95. Therefore, the service level assumed is 95 percent (corresponding to option C).

The Demand During the Lead-Time Is Normally Distributed with a Mean