Question

demand for dishwasher water pumps is 8 per day. the standard deviation of demand is 3 per day, and the order lead time is four days. the service level is 95%. what should the reorder point be?

Answer 1

Given values:

Demand (d) = 8 per day

Standard deviation of demand = 3 per day

Lead time (L) = 4 days

Service level = 95% = 0.95

Solution:

Using NORMSINV function in MS Excel, value of Z can be determined.

Z = NORMSINV (Service level)

Z = NORMSINV (0.95)

Z = 1.645

When demand is variable and lead time is constant, Reorder point (ROP) is calculated as,

ROP = (d x L) + [Z x Standard deviation x SQRT(L)]

Putting the given values in the above formula, we get,

ROP = (8 x 4) + [1.645 x 3 x SQRT(4)]

ROP = 32 + 9.87

ROP = 41.87 or 42 (Rounding off to the nearest whole number)

Reorder point = 42 pumps