Question

The daily demand for 60” flat-screen TVs at the Sterling Archer’s discount warehouse is normally distributed with a mean of 5 units and a standard deviation of 5 units. The lead time for receiving a shipment of new TVs is 10 days and is fairly consistent. Determine the reorder point and safety stock for service levels of 90%, 95%, and 98%.

Answer 1

At 90% service level:

Value of Z = 1.28

Safety stock = Z*SD*LT^.5 = 1.28*5*10^.5

Safety stock = 20.24 units or 20 units

Reorder point = 5*10 + Safety stock = 50+20.24

Reorder point = 70.24 or 70 units

==

At 95% service level:

Value of Z = 1.65

Safety stock = Z*SD*LT^.5 = 1.65*5*10^.5

Safety stock = 26.09 units or 26 units

Reorder point = 5*10 + Safety stock = 50+26.09

Reorder point = 76.09 or 76 units

==

At 98% service level:

Value of Z = 2.06

Safety stock = Z*SD*LT^.5 = 2.06*5*10^.5

Safety stock = 32.57 units or 33 units

Reorder point = 5*10 + Safety stock = 50+32.57

Reorder point =82.57 or 83 units