Given Information:
Mean daily demand = 3.5 monitors
standard deviation daily demand = 1.2 monitors
Lead time = 25 days
customer service level = 90%
Required Information:
Safety Stock = ?
Answer:
Safety Stock = 8 monitors
Step-by-step explanation:
The safety stock of monitors that IM Systems should hold is given by
[tex]Safety \:\: Stock = z \times \sigma \times \sqrt{n}[/tex]
Where σ is the standard deviation of daily demand, n is the lead time and z is the z-score corresponding to 90% service level.
From the z-table, the z-score corresponding to 90% is found to be
z = 1.282
So the required safety stock is
[tex]Safety \:\: Stock = z \times \sigma \times \sqrt{n} \\\\Safety \:\: Stock = 1.282 \times 1.2 \times \sqrt{25} \\\\Safety \:\: Stock = 1.282 \times 1.2 \times 5 \\\\Safety \:\: Stock = 7.692\\\\[/tex]
Rounding off to nearest whole number yields
Safety Stock = 8 monitors
Therefore, IM Systems should hold 8 monitors.