Question

Problem 3 (Variation & Safety Stock)

Period	Demand
1	1200
2	1000
3	800
4	900
5	1400
6	1100
7	1100
8	700
9	1000
10	800

By using excel

Average=1000

STDEV=211

Assume the lead time is one period and that the hospital wants a 99.90% service level.

Please calculate the following questions:

a) Average demand during lead time

b) Appropriate safety stock

c) The reorder point (stock quantity in inventory that would trigger the order)

Answer 1

The lead time is one period.

Ans a)

The average demand during lead time​ is the average value of the demand during the 10 periods. The average using Excel is 1000 as given in the question. Hence, Average demand during lead time = 1000 units

Ans b)

Average lead time demand = 1000 units

The standard deviation of demand = 211 units

Desired service level = 99.9%

Z-value for achieving 99.9% service level = 3.09

Appropriate Safety stock = Z * Standard deviation of demand

= 3.09 * 211

= 652 units

Ans c)

The re-order point = Average lead time demand + Safety stock

= 1000 + 652

= 1652 units