Question

Our target service level has already been calculated and is 73%.

If our best representation of demand is that it is Uniformly distributed between a lower bound of 380 and an upper bound of 1,036 (meaning it's equally likely to be anything in between), what quantity is the optimal strategic response?  

Answer 1

Given values:

Service level = 73% or 0.73

Upper bound = 1,036

Lower Bound = 380

Solution:

Using NORMSINV function in Excel, Value of Z can be computed.

Z-value = NORMSINV (Service level)

Z-value = NORMSINV (0.73)

Z-value = 0.612813

Optimal quantity (Q):

Q = Upper bound + (Z-value x lower bound)

Q = 1,036 + (0.612813 x 380)

Q = 1,268.87 or 1,269(Rounding off to the nearest whole number)

Optimal quantity = 1,269