Question

The Thompson Supply company provides a full range of products for industrial construction. Thompson buys the product from its manufacturer and then resells the product to construction companies. Its products are readily replaceable, and so a stockout typically results in a lost sales. Through its history, Thompson has maintained a reputation for having things in stock. It was often the first sourcing choice of its customers because they could rely on Thompson to have what was needed. The store is open 6 days per week. One particular type of fastener experienced fairly steady demand of 27 units per day with a standard deviation of daily demand of 5 units. The lead time for delivery is 6 days.

Suppose Thompson uses a reorder point of 170 units. What is the implied cycle service level?

Answer 1

Answer:

The correct answer is 74.22%.

Explanation:

As per the data given in the question,

Store is open for = 6 days per week

Demand = 27 units per day

Standard Deviation of daily demand = 5 units

Lead time for delivery = 6 days

Reorder point of = 170 units

As per the following formula,

Reorder point = Daily demand × Lead time + z value × standard deviation × sqrt(Lead time),  

where z = implied cycle service level

170 = 27 × 6 + z × 5 × sqrt(6)

z = (170 - 27 × 6) / (5 × sqrt(6))

z = 0.65

From the Z table, Service level = 0.7422 or 74.22%.