Question

How do you answer this question?

Based on book, Global Supply Chain Managment, (Chopra, Meindl 6/E)

Open question 3: (6 points) A car dealer that is also offering maintenance service is aiming at minimum 98% of replenishment cycles to end with all the customer demand for a specific part being met. The annual demand for the item is 30,000 units with standard deviation of 3,500 units. The dealer incurs a fixed ordering cost of 1200 EUR every time that places an order to the supplier of that specific part and it takes 3 weeks to receive the order. If the dealer a continuous review policy, what reorder point shall they set? Show your calculations.

Answer 1

Reorder point = demand during lead time + safety stock

ROP = lead time in year x annual demand + z x SD of annual demand x ( lead time in year)^1/2

= 3/52 x30000 + 2.05 x 3500 x ( 3/52)^1/2

= 1730.76+ 1723 =3453