Price per Borx $1.25 20 15 .10 Number of Boxes ,000 to 1,999 2000 to 4,999 5,000

Question

Price per Borx $1.25 20 15 .10 Number of Boxes ,000 to 1,999 2000 to 4,999 5,000 to 9.999 0,000 or more 19. Given this information Expected demand during lead time = 300 units Standard deviation of lead time demand -30 units Determine each of the following, assuming that lead time demand is distributed normally a. The ROP that will provide a risk of stockout of I percent during lead time. b. The safety stock needed to attain a I percent risk of stockout during lead time e. Would a stockout risk of 2 percent require more or less safety stock than a I percent risk? Explain. Would the ROP be larger, smaller, or unaffected if the acceptable risk were 2 percent instead of I percent? Explain.

Explanation / Answer

a. Computation of ROP

Expected demand during Lead time =300

Standard Deviation of Lead time =30

Risk of Stock out=1% Risk that means ( 1-0.1=0.99)

As per table z=2.33

ROP will be ( 300+30*2.33)   = 369.9 or 370 units ( Rounded off)

b. Computation of Safety Stock

Safety Stock = Z* Standard Deviation of Lead time

                        = (2.33*30)=69.9 or 70 units (Rounded off)

c. When the stock out risk of 2% then less safety will be required and ROP will be found smaller.

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