Question

13.38. Kelly's Tavern serves Shamrock draft beer to its customers The daily demand for beer is normally distributed, with an average of 20 gallons and a standard deviation of 4 gallons. The lead time re- quired to receive an order of beer from the local distributor is 12 days. Determine the safety stock and reorder point if the restaurant wants to maintain a 90% service level. What would be the increase in the safety stock if a 95% service level were desired?

Answer 1

13.38

At 90% service level, the value of Z = 1.28

Safety stock = Z*SD*LT^.5 = 1.28*4*12^.5

Safety stock = 17.74 units or 18 gallons

Reorder point (without safety stock) = D*LT = 20*12 = 240 gallons

Reorder point with safety stock = 240+17.74

Reorder point with safety stock = 257.74 or 258 gallons

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When service level is 95%

Then, value of Z = 1.645

New level of safety stock = Z*SD*LT^.5 = 1.645*4*12^.5

New level of safety stock = 22.79 gallons

So,

increase in safety stock = 22.79 - 17.74

increase in safety stock = 5.05 gallon or 5 gallon