Question

First market is open 350 days a year. Daily use of cash register tape (daily demand) has a mean of 20 rolls in the standard deviation of 5 rolls. It takes nine days for fresh market to receive the order it placed with its register tape supplier. what level of safety stock at the register team does rush market need to carry in order to guarantee that the register tape does not run out of 90 print 5% of the time (the corresponding to the z-value is 1.6)?

Answer 1

Safety stock = z * std deviation * sqrt (lead time)

= 1.6 *5 * sqrt(9)

= 24 rolls

Avg demand during lead time = Daily mean demand * Lead time

= 20 * 9

=180 rolls

Reorder point = Avg demand during lead time + Safety stock

= 180 + 24 = 204 rolls

(this means whenever inventory touches 204 an order needs to be placed for rolls)

Mean Annual demand. D = 350 * 20 = 7000

Order cost, S = $10

Holding cost, h = 0.20

EOQ = sqrt (2DS/H)

= sqrt (7000*2*10 / 0.20)

= 836.67 units

approximately 837 units