The weekly demand for a product is 264 units with a standard deviation of 105 units. The cost to place an order is $31.20, and the time from ordering to receipt is 4 weeks. The annual inventory holding cost is $0.10 per unit. Find the reorder point necessary to provide a 98% service probability. (For a 98% probability, use the z-value of 2).

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TomShelby TomShelby · Answer 1 · 2019-11-06T21:27:43+01:00

Answer:

Reorder point: 1,476 units

Explanation:

we should assure an inventory quantity which ensures sufficient sotck to avoid shortage 98% of the times.

we look into the normal distribution table for the value of z which accumulates: 0.98 this is 2.00

Now we solve for X with median of 264 and deviation of 105 per week

we should consider the lead time is 4 week thus:

Reorder point: median x L + z x √L x deviation

1,056 + 2 x √4 x 105 =

1,056 + 420 = 1,476