In a continuous review system, the average daily demand for a part is Normally distributed with...
In a continuous review system, the average daily demand for a part is Normally distributed with mean 20 and standard deviation of 4. The lead time to receive the part from the time it is ordered is 9 days. The appropriate re-order point for this part if we want a 95% service level is
Homework Answers
Given:
Average Daily demand = 20
Standard deviation of demand = 4
Lead time = 9 days
Service level = 95% = 0.95
Reorder point, ROP = Average Daily Demand + Z-score(At service level) * Standard deviation * Sqrt (Lead Time)
Z-Score (At Service level of 95%) = 1.65
ROP = 20 + (1.65 * 4 * SQRT(9))
= 20 + (1.65*4*3)
= 39.8
~ 40 Units
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