Question

A drugstore uses fixed-order cycles for many of the items it stocks. The manager wants a...

A drugstore uses fixed-order cycles for many of the items it stocks. The manager wants a service level of .98. The order interval is 14 days, and lead time is 3 days. Average demand for one item is 68 units per day, and the standard deviation of demand is 12 units per day. Given the on-hand inventory at the reorder time for each order cycle shown in the following table.
Use Table.


Cycle On Hand
1 46      
2 10      
3 99      


Determine the order quantities for cycles 1, 2, and 3: (Round your answers to the nearest whole number)


Cycle           Units
1   
2   
3   
Business   Operations-Management   
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Homework Answers

Answer #1

Given are following data :

Order interval = 14 days

Lead time = 3 days

Therefore, Protection period = P = Order interval + Lead time = 14 + 3 = 17 days

Required service level = 0.98

Corresponding Z value = NORMSINV ( 0.98 ) = 2.0537

Standard deviation of daily demand = 12 units

Therefore, standard deviation of demand during protection period

= Standard deviation of daily demand x square root ( Protection period )

= 12 x square root ( protection period )

= 12 X square root ( 17 )

= 12 x 4.123

= 49.476

Therefore, safety stock = Z value x standard deviation of demand during protection period = 2.0537 x 49.476 = 101.60 ( 102 rounded to nearest whole number )

Reorder point = Daily demand x Protection period + safety stock = 68 x 17 + 102 = 1156 + 102 = 1258

Order quantity = Reorder point – Quantity on hand

Accordingly, please find below required answers :

CYCLE

UNITS

1

1212

2

1248

3

1159
0 0
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