The demand for a product is normally distributed with an average daily demand of 90 units...
The demand for a product is normally distributed with an average daily demand of 90 units and a standard deviation of 20. The lead time for the component is 4 days. A service level of 97.5% is desired. What is the optimal re-order point? ANSWER IS 438 UNITS. Please show steps as I do not know how they got here.
Homework Answers
Average daily demand (d) = 90 units
Lead time (L) = 4 days
The standard deviation of daily demand
(
d)
= 20 units
Service level expectancy = 97.5%
Z-value corresponding to 97.5% service level = 1.96
Ans A)
Re-order point (R) is given by the formula,
units
Hence, rounding down, the re-order point is 438 units.
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