Question

. the average demand for an item 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 be the reorder point be?

a- 18

b- 24

c- 32

d- 38

E- 41

Answer 1

Given values:

Average demand (d) = 8 per day

Standard deviation of demand, (d) = 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 = 1.64

Reorder point (ROP) is calculated as,

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

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

ROP = (8 x 4) + [1.64 x 3 x SQRT(4)]

ROP = 32 + 9.84

ROP = 41.84 or 41 (Closest to the given alternatives)

Reorder point = 41

Answer: (E) 41