Question

Jimmy’s Delicatessen sells large tins of Tom Tucker’s Toffee. The deli uses a periodic review system, checking inventory levels every 10 days, at which time an order is placed for more tins. Order lead time is 3 days. Average daily demand is 7 tins, so average demand during the reorder period and order lead time (13 days) is 91 tins. The standard deviation of demand during this same 13- day period is 17 tins. Calculate the restocking level. Assume the desired service level is 90% percent.

Answer 1

The restocking level is 113 tins.

Explanation:

Let the random variable X represents the restocking level.

The average demand during the reorder period and order lead time (13 days) is, μ = 91 tins.

The standard deviation of demand during this same 13- day period is, σ = 17 tins.

The service level that is desired is, 90%.

Compute the z-value for 90% desired service level as follows:

`z_(\alpha)=z_(0.10)=1.282`

*Use a z-table for the value.

The expression representing the restocking level is:

`X=\mu +z \sigma`

Compute the restocking level for a 90% desired service level as follows:

`X=\mu +z \sigma`

`=91+(1.282* 17)\\=91+21.794\\=112.794\\\approx 113`

Thus, the restocking level is 113 tins.