The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50.The lead time for the component is 9 days.If a service level of 95% is desired,then the company's safety stock for this component is approximately
A)150 units.
B)247 units.
C)336 units.
D)740 units.

Question

Quizplus · Accepted Answer

To calculate safety stock, use the formula: Safety Stock = Z-score * Standard Deviation of Demand during Lead Time. For a 95% service level, the Z-score is approximately 1.645. The standard deviation of demand during lead time is calculated as the daily standard deviation multiplied by the square root of the lead time: 50 * sqrt(9) = 150. Therefore, Safety Stock = 1.645 * 150 ≈ 247 units.

The Demand for an Electronic Component Is Normally Distributed with an Average