Question

Q 3. (6 marks) [CLO 2] The purchasing manager for a firm is trying to determine what the safety stock should be for a particular product. She has developed the following table, which gives the distribution of demand during the lead-time and the probabilities: Demand During Probability 50 40 70 80 60 0.20 0.25 0.25 0.20 0.10

Answer 1

Let X denotes the demand during the lead-time for a particular product.

The purchasing manager for a firm wants to determine the safety stock for a particular product. Therefore, the safety stock for the product can be calculated as the expected demand during the lead-time. Such that:

$E(X) = \sum {xP(x)}$

  $\begin{gathered} = 50(0.20) + 40(0.25) + 70(0.25) + 80(0.20) + 60(0.10) \hfill \\ = 10 + 10 + 17.5 + 16 + 6 \hfill \\ = 59.5 \hfill \\ \end{gathered}$

Therefore, for the error on safer side the safety stock for the product is 60.