Question

A company begins a review of ordering policies for its continuous review system by checking the current policies for a sample of SKUs. Following are the characteristics of one item. Refer to the standard normal tableLOADING... for​ z-values. followsDemand ​(D) = 120 ​units/week (Assume 49 weeks per​ year) followsOrdering and setup cost​ (S) = ​$40​/order followsHolding cost​ (H) = ​$13.50​/unit/year followsLead time​ (L) = 1 weeks followsStandard deviation of weekly demand​ = 23 units follows​Cycle-service level​ = 96 percent a. What is the EOQ for this​ item? 187 units. ​(Enter your response rounded to the nearest whole​ number.) b. What is the desired safety​ stock? nothing units. ​(Enter your response rounded to the nearest whole​ number.)

Answer 1

Answer:

Safety Stock: 40 units

Explanation:

$max \: \: demand \times lead-time - average  \:  \: demand \times lead-time$

We need to solve for maximum demand we expect.

We desire a cycle-service level of 96% thus, our theoretical demand is where P(z) = 0.96

in the table we got that:

z = 1.75       p =  0.95994

z = 1.76       p =  0.96080

So we need to solve for X given:

a mean of 120

a deviation of 23

and z of 1.75

$\frac{X-120}{23} = 1.75$

$X = 1.75 \times 23 + 1,20$

X = 160.25

Now we can calculate the desired safety stock:

160 x 1 - 120 x 1 = 160  -  120 =  40