Question

Weekly demand for a product is 250 units with a standard deviation of 60 units (assume 52 weeks per year). Lead-time is 3 weeks. Calculate the safety stock and the reorder point for 98 percent service level.

Answer 1

Explanation:

Data provided in the question

Weekly demand for a product = 250 units

Standard deviation = 60 units

Lead time = 3 weeks

Service level = 98%

And, the service factor from the normal distribution is 2.05

Now the

Safety stock = Service factor × standard deviation × √lead time

= 2.05 × 60 × 1.73

= 212.79

Now the reorder point is

= Weekly demand × lead time + safety stock

= 250 units × 3 weeks + 212.79

= 962.79