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9) Identify the appropriate inventory model to obtain the optimal lot size for the given problem...

9) Identify the appropriate inventory model to obtain the optimal lot size for the given problem description:

A drugstore places an order every fourteen days for many of the items it stocks. The manager of the drugstore wants a service level of 98%. The replenishment lead-time is 2 days. Average demand for one specific item is normally distributed with a mean of 40 units per day, and the standard deviation of demand is 3 units per day.

Select one:

a. None of the listed

b. Fixed Order Interval

c. Single Period

d. ROP

e. EOQ

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Answer #1

ANSWER

This is a case of Fixed Order Interval

The given data is

Service Level = 98%

Lead Time = 2 days

Mean Demand = 40 units/day

Standard Deviation of demand = 3 units/day

For 98% Service Level, z = 2.055

The safety stock and reorder point are calculated below:

Formula Value 40 2 80 Parameter Units Remarks Average Demand Rate Lead Time Lead Time Demand units/da LT D(LT)d LT units Stoc

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