Question

Dunstreet's Department Store would like to develop an inventory ordering policy of a 90 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets.

Demand for white percale sheets is 3,400 per year. The store is open 365 days per year. Every two weeks (14 days) inventory is counted and a new order is placed. It takes 12 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 170 sheets on hand.
How many sheets should you order?

Answer 1

138 sheets

Step-by-step explanation:

Calculation to determine How many sheets should you order

1.28

The first step will be to find the z-value for a service probability of 0.90 using Excel's NORM.S.INV

z=NORM.S.INV(0.90)=1.28z=NORM.S.INV(0.90)=1.28

Second step is to find the target inventory level using this formula

Target inventory level= Daily Demand×(Lead Time+Review Time)+z×Standard Deviation of Daily Demand×√Lead Time+Review Time

Target inventory level=3,400/365×(12+14)+1.28∗5∗√12+14

Target inventory level=278 sheets

Now let calculate How many sheets should you order

Using this formula

Numbers of sheets to order=Target inventory level-Sheets on hand

Let plug in the formula

Numbers of sheets to order=278 sheets-170sheets

Numbers of sheets to order=138 sheets

Therefore The Numbers of sheets you should order is 138 sheets