Question

For a particular SKU, the lead time is 6 weeks, the average demand is 100 units a week, and safety stock is 200 units. What is the average inventory if 10 weeks’ supply is ordered at one time? What is the order point?

The standard deviation of demand during the lead time is 100 units.

Calculate the safety stock required for the following service levels: 75%, 80%, 85%, 90%, 95%, and 99.99%.

Calculate the change in safety stock required to increase the service levels from 75% to 80%, 80% to 85%,

Calculate the standard deviation for the information below.

Period Forecast demand Actual Demand Deviation Deviation Squared

1 1,000 900.00

2 1,000 900.00

3 1,000 600.00

4 1,000 700.00

5 1,000 1,200.00

6 1,000 1,200.00

7 1,000 1,200.00

8 1,000 1,300.00

9 1,000 1,100.00

10 1,000 900.00

Total 10,000 10,000.00

The safety stock on an SKU is set at 200 units. The supplier says it has to increase the lead time from 6 weeks to 8. What should be the new safety stock?

A regional warehouse orders items once a week from a central warehouse. The truck arrives 3 days after the order is placed. The warehouse operates 5 days a week. For a particular brand and size of chicken soup, the demand is fairly steady at 20 cases per day. Safety stock is set at 2 days’ supply.

What is the target level?

If the quantity on hand is 90 cases, how many should be ordered?

Answer 1

Average weekly demand, d = 100 units

Safety stock, ss = 200 units

Lead time, L = 6 weeks

Order quantity, Q = 100*10 = 1000 units

Average inventory = Q/2 + ss

= 1000/2 + 200

= 700 units

Order point = d*L

= 100*6

= 600 units

Standard deviation of demand during lead time, s = 100 units

Safety stock for 75% service level = z*s = NORMSINV(.75)*100 = 67

Safety stock for 80% service level = z*s = NORMSINV(.80)*100 = 84

Safety stock for 85% service level = z*s = NORMSINV(.85)*100 = 104

Safety stock for 90% service level = z*s = NORMSINV(.90)*100 = 128

Safety stock for 95% service level = z*s = NORMSINV(.95)*100 = 164

Safety stock for 99.99% service level = z*s = NORMSINV(.9999)*100 = 372

Change in safety stock required to increase the service levels from 75% to 80% = 84 - 67 = 17

Change in safety stock required to increase the service levels from 80% to 85% = 104 - 84 = 20