3. For its most sold product, a department store estimates a stable mean demand

Question

3. For its most sold product, a department store estimates a stable mean demand rate of 200 units per week and a weekly variance of 1,000 units2, for the whole year. If the store is able to place and receive orders almost immediately and whenever it desires, If the store is able to place and reeive onders almoat immediately and whemewer it desires (xvi) what would be the service level with zero safety inventory? (xvi) What would be the safety inventory for a service level of 80%? If the lead time is now one week. (xviii) what would be the safety inventory for a service level of 80%? If the store places one order every two weeks, (xix) what would be the safety inventory for a service level of 80%? If the lead time is one week and the store places one order every two weeks, (xx what would the safety inventory be for a service level of 80%?

Explanation / Answer

mean= 200 units variance = 1000

If we want to have zero safety inventory service level has to be zero.

Safety stock= Z* Std deviation* sqrt(lead time)*sqrt(order rate)

At 50% of service level Z=0 and safety stock is zero.

2) At service level of 80% using normsinv function in excel you can find service factor[Normsinv(80%)]

Safety stock = (.84)*(1000)^.5*1= 27 units

3)The order rate will not chnage the safety stock to be held

safety stock= (.84)*(1000)^.5*18sqrt(2)= 38 units

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