Question

A product has an average demand of 40 units per week and a standard deviation of 10 units per week (normally distributed). The lead time is 5 weeks. What is the safety stock inventory if the organization wants to achieve a 90% cycle-service level

Answer 1

37 units

Step-by-step explanation:

lead time = 5 weeks

service level = 90%, z score = 1.645

average demand = 40 units per week

standard deviation = 10 units per week

safety stock = z-score · √lead time · standard deviation of demand = 1.645 · √5 weeks · 10 units per week = 1.645 · 2.236 · 10 = 36.78 ≈ 37 units

the reorder point = (5 weeks x 40 units per week) + safety stock = 200 + 37 = 237 units