Question

If daily demand is normally distributed with a mean of 15 and standard deviation of 5, and lead time is constant at 4 days, a 90 percent service level will require how much safety stock? A) 7 units B) 10 units C) 13 units D) 16 units E) 26 unit

Answer 1

The correct answer is Option C : 13 Units. The closest whole number to the calculated safety stock is 13 units.

To find safety stock with a 90% service level and given data, calculate using the formula

Safety Stock = Z * standard deviation * sqrt(lead time).

To calculate the safety stock at a 90% service level given that daily demand is normally distributed with a mean of 15 and standard deviation of 5, and the lead time is constant at 4 days, we use the following formula :

• Determine the Z-score that corresponds to the desired service level.
• Calculate the safety stock using the formula : Safety Stock = Z * standard deviation * sqrt(lead time).

For a 90% service level, the Z-score is approximately 1.28. Using the formula, we get :

Safety Stock = 1.28 * 5 * sqrt(4) = 1.28 * 5 * 2 = 12.8

Since safety stock can't be a fraction of a unit, we'd round to the nearest whole number. Hence, the required safety stock is approximately 13 units.