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A store wants to ensure a shelf full of marshmallow peeps as the holiday season approaches. Daily demand for peeps is normally distributed with a mean of 25 and a standard deviation of 5. Lead time is 3 days and the store intends a 98% service level. What is the appropriate reorder point?

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TomShelby

Answer:

Explanation:

As we want a service level of 98% (meaning only a 2% chance of stock-out during lead-time)

We have to check for the Z value which accumulated .98

for the normal distribution table we got that this value is 2.05

Now we solve for the reorder point:

The reorder point will be:

average usage per day x lead-time + safety stock

where:

safety stock:  Z-value x standard deviation(lead time) x demand average

Safety stock

[tex]2.05 \times \sqrt[3]{5} \times 25 = $Safety Stock[/tex]

17.52725345

demand during lead-time:

average of 25 untis x 3 days = 75 units

75  + 17.52725345 = 92.52725345 = 93 units

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