Question

If the annual demand is 3000 units and there are 365 days in a year. The accepted level of stockout is at most 5% and the standard deviation of demand during the lead time is 20 unit and the lead time is 10 days. What is the reorder point?

1. 120

2. 121

3. 125

4. 115

5. 110

Answer 1

Annual demand (D) = 3000 units

Number of days per year = 365 days

Average daily demand (d) = D/number of days per year = 3000/365 = 8.22 units

Lead time (L) = 10 days

Accepted level of stockout = at most 5%. So service level = 100% - 5% = 95%

At 95% service level value of Z = 1.65

Standard deviation of demand during lead time (dL) = 20 units

Reorder point = d x L + (Z x dL)

= 8.22 x 10 + (1.65 x 20)

= 82.2 + 33

= 115.2 or rounded to 115

So the answer is option 4