Weekly demand for Motorola cell phones at a Best Buy store is normally distribut

Question

Weekly demand for Motorola cell phones at a Best Buy store is normally distributed, with a mean of 300 and a standard deviation of 200. Motorola takes two weeks to supply a Best Buy order. Best Buy is targeting a service level of 95% and monitors its inventory continuously. Safety inventory is 466. Reorder point 1066. Q: Suppose the store manager decides to follow a periodic review policy to manage inventory of cell phones. She plans to order every three weeks. Given a desired service level of 95%, what should the basestock level be?

Explanation / Answer

Avg demand (x) = 300

Std deviation (sd) = 200

lead time (L) = 2

service level = 95% or Z = 1.64

safety stock (SS) = 466

re-order point = 1066

Reorder period (r) = thrice a week = 3

base stock = x ( L + r) + Z*sd {SQRT(L+r)} SQRT means square root

= {300 ( 2 + 3 )} + [1.64*200{SQRT(2+3)}]

= 1500 + 733 = 2233

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