Question

Lead Time Demand for an item we keep in stock is 420 units, with a standard...

  1. Lead Time Demand for an item we keep in stock is 420 units, with a standard deviation of 44 units.
  1. What service level is achieved with our current Reorder point of 442 units?
  1. What Reorder Point should be used in order to accomplish a service level of 97%?
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Answer #1

Lead time demand = d * L = 420 units

Std. Deviation = = 44 units

a) Reorder point = 442 units

Reorder point = Lead time demand + Z * Std. Deviation

442 = 420 + Z * 44

Z = 0.5

For Z = 0.5, Service level = 69.14%

b) For Service level of 97%, Z value = 1.88

Reorder point = Lead time demand + Z * Std. Deviation = 420 + 1.88 * 44 = 502.72 = 503 units

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