Scenario 9.8
A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year.
-Use the information in Scenario 9.8. What is the desired safety stock level if the company has a policy of maintaining a 90% cycle-service level?
A) less than or equal to 50 units
B) greater than 50 but less than or equal to 100 units
C) greater than 100 but less than or equal to 150 units
D) greater than 150 units

Question

Quizplus · Accepted Answer

To calculate the desired safety stock level for a 90% cycle-service level, we use the Z-score corresponding to the desired service level. For a 90% service level, the Z-score is approximately 1.28. The formula for safety stock is Z * σLT, where σLT is the standard deviation of demand during lead time. The standard deviation of demand during lead time (σLT) can be calculated as the standard deviation of weekly demand (σ) times the square root of the lead time in weeks, which is √6 in this case. Therefore, σLT = 20 * √6 ≈ 49. The safety stock is then 1.28 * 49 ≈ 63 units, which falls into the range of greater than 50 but less than or equal to 100 units.

Scenario 9.8 a Company Operating Under a Continuous Review System Has an Has