Final answer:
The estimated safety stock with a reorder point of 204 units, a 90% service level, and an average demand during lead time of 200 units is approximately 5.72 units. Hence the correct answer is option D
Step-by-step explanation:
The safety stock is the amount of inventory carried to protect against variability in demand or lead time. It ensures that even if there are unexpected fluctuations, there will still be enough stock available to meet customer demand. To calculate the estimated safety stock, we need to use the formula:
Safety Stock = Z x √(Lead Time Demand x (1 - Service Level))
Given that the reorder point (ROP) is 204 units, the average demand during lead time is 200 units, and the service level is 90%:
Safety Stock = Z x √(200 x (1 - 0.9))
The value of Z depends on the desired service level, and it can be found in a standard normal distribution table. For a 90% service level, the Z value is approximately 1.28. Plugging the values into the formula:
Safety Stock = 1.28 x √(200 x 0.1) = 1.28 x √20
Safety Stock ≈ 1.28 x 4.47 ≈ 5.7216 ≈ 5.72 units
Therefore, the estimated safety stock with a reorder point of 204 units, a 90% service level, and an average demand during lead time of 200 units is approximately 5.72 units.
Hence the correct answer is option D