Question

You would like to use the fixed-order-interval inventory model to compute the desired order quantity for a company. You know that vendor lead-time is 10 days and the number of days between reviews is 15. Which of the following is the standard deviation of demand over the review and lead-time period if the standard deviation of daily demand is 10?

a. 25
b. 40
c. 50
d. 73
e. 100

Answer 1

c. 50

Step-by-step explanation:

The calculation of standard deviation is conducted by using the mean of the sample and the number of samples considered. Therefore, based on the data available, the value of the standard deviation of the given demand over the (10+15) 25 days considering the time for both reviews and lead-time is equivalent to :

Standard deviation =
`√(25*100) = √(2500) = 50`

Answer 2

c. 50

Step-by-step explanation:

Fixed-order-interval inventory model also known as fixed reorder cycle inventory model is used to manage supply of raw material to a business based on demand of the product. Review of inventory is done by inventory analyst at fixed intervals and of inventory level is above a predetermined reorder level, nothing is done.

If however stock is at or below set reorder level raw material is purchased and is based on the formula- Maximum level - Current level.

In the scenario above we use the following formula

Standard deviation of demand over the review and lead-time period(SD)=Square root of { (Lead time+ Number of days between review)* (Standard deviation of daily demand)^2}

SD= √ {(10+15)*(10)^2}

SD= √ (25* 100)

SD= √2,500

SD= 50