Question

Which of the following values for = should we use in as safety stock calculation if we want a service probability of 98%?

A) 1.64
B) 1.96
C) 2.05
D) 2.30
E) None of these

Answer 1

To achieve a 98% service probability in safety stock calculation, the appropriate z-score to use is approximately 2.05, which corresponds to the cumulative probability of 0.98 in the standard normal distribution.

Step-by-step explanation:

In the context of inventory management and safety stock calculation, the value of z is used to determine the appropriate level of stock to maintain in order to achieve a desired service level, with z representing the number of standard deviations away from the mean demand during lead time. A 98% service probability corresponds to a service level where the probability of not stocking out is 98%. To achieve this, the standard score or z-score from the normal distribution is used.

For a service level of 98%, the z-score that corresponds to the cumulative probability of 0.98 in the standard normal distribution is approximately 2.05. Therefore, the correct z-score to use for a 98% service probability in safety stock calculation is 2.05.