Thomas' Bike Shop stocks a high volume item that has a normally distributed demand during the reorder period. The average daily demand is 70 units, the lead time is 4 days, and the standard deviation of demand during the reorder period is 15.
a. How much safety stock provides a 95% service level to Thomas?
b. What should the reorder point be?
The average daily demand = 70 units
Lead time = 4 days
Mean lead time demand = The average daily demand * Lead time
= 70 * 4
= 280 units
The standard deviation of demand = 15 units
Ans a)
Desired service level = 95%
Z-value for achieving 95% service level = 1.65
Safety stock = Z * Standard deviation of demand
= 1.65 * 15
= 24.75 or 25 units
Ans b)
Appropriate re-order point = Mean lead time demand + Safety stock
= 280 + 25
= 305 units
Thomas' Bike Shop stocks a high volume item that has a normally distributed demand during the reorder period.