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a company wants to determine its reorder point (rop). demand is variable and they want to build a safety stock into rop. if the average daily demand is 12, the lead time is 4 days, the desired z-value is 1.96, and the standard deviation of usage during a single day is 2.54, what is the desired value of rop?

User Adam Fox
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1 Answer

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Final answer:

The reorder point (ROP) is calculated as the sum of the product of average daily demand and lead time, plus the product of z-value, standard deviation of daily demand, and square root of lead time. Given the average daily demand of 12, a lead time of 4 days, a z-value of 1.96, and a standard deviation of daily demand of 2.54, the ROP is approximately 58 units.

Step-by-step explanation:

To calculate the reorder point (ROP), we consider the average daily demand, lead time, the z-value for the desired service level, and the standard deviation of daily demand. The formula for ROP including safety stock is:

ROP = (Average daily demand × Lead time) + (Z-value × Standard deviation of daily demand × Square root of lead time)

Given that the average daily demand is 12, lead time is 4 days, desired z-value is 1.96 (which corresponds to a service level of approximately 95% in the standard normal distribution), and standard deviation of daily demand is 2.54, we can plug these values into the formula:

ROP = (12 × 4) + (1.96 × 2.54 × √4)

ROP = 48 + (1.96 × 2.54 × 2)

ROP = 48 + 9.9504

ROP ≈ 57.95

Therefore, the desired value of ROP is approximately 58 units.

User Stealthysnacks
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