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Dunstreet's Department Store would like to develop an inventory ordering policy of a 98 percent probability...

Dunstreet's Department Store would like to develop an inventory ordering policy of a 98 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 4,600 per year. The store is open 365 days per year. Every two weeks (14 days) inventory is counted and a new order is placed. It takes 13 days for the sheets to be delivered. Standard deviation of demand for the sheets is nine 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.)

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Answer #1

We have following information

Service Level probability P = 98% (Probability of not stocking out)

From Standard normal distribution, z = 2.053 for 98% Service Level (Use excel function”=NORMSINV(0.98)”)

Annual demand D = 4,600 per year

Therefore, daily demand d = 4,600/365 = 12.60 sheets

Time between orders (review) T = 14 days

Lead time L = 13 days

Standard deviation of daily demand SD = 9 per day

Current Inventory in hand = 180 sheets

Number of sheets you should order = Average daily demand *(Time +lead time) + z * √ (time + lead time) *√Standard deviation of demand - Current Inventory in hand

= 12.60 * (14 days + 13 days) + 2.053 *√ (14 days + 13 days) *√9 – 180

= 340.27 + 32.01 -180

=192.37 sheets

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