Question

A company has average demand of 30 units per day. Lead time from the supplier averages seven days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent. 1 standard deviation covers 84.13% 1.04 standard deviations covers 85% 1.28 standard deviations covers 90% 1.65 standard deviations covers 95% 1.96 standard deviations covers 97.5% 2 standard deviations covers 97.72% 2.33 standard deviations covers 99% 3 standard deviations covers 99.86% 6 standard deviations covers 99.99966% What is the reorder point for the company if it decides on a 99 percent service level

Answer 1

Reorder point is 257

Step-by-step explanation:

To calculate the reorder point for the company if it decides on a 99 percent service level, we use the following method

Given

Average demand = 30

Standard deviation = 20

Reorder = (30 × 7) + (2.33 ×20)

Reorder point = 210 + 46.6

Reorder = 257 rounded.

So we have 257 as our recorder point