Question

Suppose the daily demand of a product follows a normal distribution with the mean of 50 units and the standard deviation of 10 units. Lead time is 9 days. The ordering cost is $400 per order, and the inventory holding cost is $20 per unit per year. A cycle service level (probability of no stockout) of 95% is required. Using the fixed order quantity model, what is the reorder point? 500 450 O 720 630

Answer 1

1.

Reorder point, R = d-bar * LT + z*sigma-d * √LT

where d-bar= daily demand = 50

sigma-d= standard deviation of daily demand = 10

LT= lead time = 9 days

z = number of standard deviations corresponding to service level probability

For service level of 95%, z = 1.65

R = d-bar * LT + z*sigma-d * √LT

R = 50*9 + 1.65*10* √9

R = 450 + 1.65*10*3

R = 499.5 ~ 500

Correct answer is 500.

2.

MRP is a technique designed to manage-

Correct answer is " dependent demand items"

Rationale: A dependent demand item is so called because its demand is dependent on customer preferences. MRP is generally practiced on items with dependent demand.

3.

Sales and operations planning is a technique used to balance the supply and demand of

Correct answer is "items at and aggregate level"

Rationale:Sales and operations planning assists the organisations to balance the demand and supply. This process is also called aggregate planning.

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