Question

Daily demand for a product is 100 units, with a standard deviation of 15 units. The review period is 20 days and the lead time is 10 days. At the time of review, there are 50 units in stock. If 98 percent service probability is desired, how many units should be ordered? (Use Excel's NORM.S.INV() function to find the z value. Round z value to 2 decimal places and final answer to the nearest whole number.) Ordered quantity units

Answer 1

Answer

Data provided
Daily Demand (d)	100	units
Standard Deviation ( sigma)	15	units
review period (RP)	20	days
Lead time(L)	10	days
Stock(I)	50	units
Service probablity	98%
To Obtain
How many units to be ordered?
q = d*(L+RP) + z * sigma at L+RP - I	(A)
Compute
sigma at L +RP
=SQRT(L+ RP) *sigma
=sqrt(10+20)*15
82.16 rounded to 2 d.p
sigma at L +RP	82.16
Compute z value at 98% service probablity
=Norm.s.inv(98%)
2.05 rounded to 2 d.p
Compute q by putting down the values given above in equation (A)
q	=100*(10+20)+2.05*82.16-50
q	3119
q	3119

Ordered quantity = 3119 units rounded up to whole number...

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