Question

For a given inventory item, demand averages 30 units per week, with a standard deviation of 6 units. Lead time for this item is 4 weeks. If we wanted to set a reorder point for this item that exposes to not more than a 5% risk of a a stockout, that reorder point would be -_-_-_units. (Round ( to 2 decimal places and report only the number.)

Answer 1

To calculate the reorder point that exposes to not more than a 5% risk of a stockout, we need to consider the demand during lead time and find the z-score corresponding to a 5% risk. The reorder point would be approximately 197.4 units.

Step-by-step explanation:

To calculate the reorder point that exposes to not more than a 5% risk of a stockout, we need to consider the demand during lead time. The lead time demand can be calculated by multiplying the average demand per week by the lead time. In this case, the lead time demand would be 30 units/week x 4 weeks = 120 units. Next, we need to find the z-score corresponding to a 5% risk of stockout. The z-score can be found using a standard normal distribution table, and for a 5% risk, the z-score is approximately 1.645. Finally, we can calculate the reorder point by multiplying the lead time demand by the z-score: 120 units x 1.645 = 197.4 units. Therefore, the reorder point would be approximately 197.4 units.