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Dunstreet's Department Store would like to develop an inventory ordering policy of a 95 percent probability...

Dunstreet's Department Store would like to develop an inventory ordering policy of a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets.

     Demand for white percale sheets is 3,200 per year. The store is open 365 days per year. Every four weeks (28 days) inventory is counted and a new order is placed. It takes 15 days for the sheets to be delivered. Standard deviation of demand for the sheets is three per day. There are currently 180 sheets on hand.

How many sheets should you order? (Use Excel's NORMSINV() function to find the correct critical value for the given α-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)

  Number of sheets
Business   Operations-Management   
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Answer #1

Annual demand (D) = 3200 sheets

Numner of working days = 365

Daily demand (d) = 3200/365

Daily demand (d) = 8.767123 sheets

Review time (P) = 28 days

Lead time (L) = 15 days

Standard deviation of demand () = 3 sheets

On-hand Inventory (I) = 180 sheets

In-stock Probability = 0.95

* Use function "=Normsinv(0.95)" to find value of Z.

Value of Z = 1.64485

Value of Z = 1.64 (rounded off to 2 decimals)

Let quantity of sheets to be ordered = Q

Q = 376.9863 + 32.26259 - 180

Q = 409.2489 - 180

Q = 229.2489

Q = 229 sheets (rounded off)

Therefore, number of sheets = 229

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