Question

Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence, as slowly) as possible. Central Perk uses 80 filters a day with a standard deviation of 5 days. It would be disastrous if they ran out of these filters, years ago customers caught them using paper towels from the men's room and business suffered. They have set their service level at 99% in hopes of avoiding a similar situation. It takes a fortnight (14 days) to receive a shipment and the standard deviation of the shipping time is two days. What is their reorder point?

A.​1,490 filters

B.​1,120 filters

C.​1,515 filters

D.1,450 filters

Answer 1

The reorder point for Central Perk's organic coffee filters is 1,515 filters, which takes into account the lead time demand, desired service level, and safety stock.

Step-by-step explanation:

To determine the reorder point, we need to consider the lead time demand and the desired service level. The lead time demand is the average number of filters used during the lead time (14 days), which is calculated by multiplying the average daily usage (80 filters) by the lead time (14 days). Therefore, the lead time demand is 80 filters/day * 14 days = 1120 filters.

Next, we need to account for the desired service level of 99%. This is done by considering the z-score associated with a 99% service level, which can be found using a standard normal distribution table or calculator. For a 99% service level, the z-score is approximately 2.33.

Finally, we calculate the reorder point by multiplying the lead time demand by the z-score and adding the safety stock. The safety stock is calculated by multiplying the standard deviation of the daily usage (5 days) by the z-score. Therefore, the reorder point is 1120 filters + (2.33 * 5 filters) = 1514.65, which rounds up to 1515 filters. So, the correct answer is option C: 1,515 filters.

Answer 2

1,360 filters

Step-by-step explanation:

To avoid the material / inventory shortage a company calculates the a level of inventory at which a new order will be placed. It consider the lead time to deliver an order.

Daily usage = 80 filters

Delivery lead time = 14 days

Reorder Point formula = ( Daily usage x Lead time ) + Safety Stock

We need safety stock to calculate the reorder level. Safety stock is the level of inventory which is maintained to eliminate the risk of stock out of inventory.

Safety stock = (Maximum daily usage x Maximum lead time in days) – (Average daily usage x Average lead time in days).

Safety stock = ( (80+5) filters x (14+2) days ) – ( 80 filters x 14 days )

Safety stock = 1,360 filters - 1,120 filters = 240 filters

Placing values in Reorder point formula

Reorder Point formula = ( 80 x 14 ) + 240 = 1360 filters