Scenario 9.6
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.A normal distribution table is appended to this exam.
-Use the information in Scenario 9.6.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 determine the safety stock level, we first need to calculate the standard deviation of demand during the lead time. Since lead time is six weeks and demand has a weekly standard deviation of 20 units, the standard deviation of demand during the lead time would be 20 * sqrt(6) = 48.99 units (approx.). Using the normal distribution table, we can find the z-value corresponding to a 90% cycle-service level, which is 1.28 (rounded to two decimal places). Thus, the safety stock level would be 1.28 * 48.99 = 62.71 units (approx.). Adding this to the average demand of 50 units per week, the desired safety stock level would be greater than 50 but less than or equal to 100 units, making option B the correct choice.

Scenario 9.6 a Company Operating Under a Continuous Review System Has an Has