Question

Dunstreet’s Department Store would like to develop an inventory ordering policy of a 95 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 5,000 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 10 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 150 sheets on hand.

How many sheets should you order?

Answer 1

219 sheets

Step-by-step explanation:

The computation of the number of sheets ordered is computed by applying the following formula

Number of sheets ordered is

= Average daily demand × (Lead time + time taken) + Service probability × standard deviation in lead time - present inventory level

where,

Standard deviation in lead time is

=
`√(10+14(5))`

= 24.49

And, the service probability level could be find out by applying the =NORMSINV(0.95) in excel so the value of z is 1.64

And, all other things would remain the same

= 5,000 ÷ 365 days × (10 + 14) + (1.64) (24.49) - 150

= 219 sheets

Answer 2

The number of sheets you should order is 219 sheets.

Step-by-step explanation:

Before we can determine the number sheets to order, we need to first calculate the targeted number of sheet as follows:

TN = DD * (LT + RT) + z + SDD *
`√(LT + RT)` .......................... (1)

Where;

TN = Targeted number of sheets = ?

DD = Daily demand = 5,000 / 365 = 13.70

LT = Lead time = 10

RT = Review time or stock taking time = 14

SDD = Standard Deviation of Daily Demand = 5

z = 1.64

Note: Since Dunstreet’s Department Store would like to develop an inventory ordering policy of a 95 percent probability of not stocking out, the z is determined by just typing the function =NORM.S.INV(0.95) in the Microsoft Excel to obtain the 1.64.

Substituting the values into equation (1), we have:

TN = 13.70 * (10 + 14) + 1.64 * 5 *
`√(10+14)`

TN = 369 approximately

Since there are currently 150 sheets on hand, the number of sheets you should order can be determined as follows:

Number of sheet to order = TS - Number of sheets on hand = 369 - 150 = 219 sheets

Therefore, the number of sheets you should order is 219 sheets.