Dunstreet\'s Department Store would like to develop an inventory ordering policy

Question

Dunstreet's Department Store would like to develop an inventory ordering policy of a 99 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 4,500 per year. The store is open 365 days per year. Every three weeks (21 days) inventory is counted and a new order is placed. It takes 6 days for the sheets to be delivered. Standard deviation of demand for the sheets is four per day. There are currently 200 sheets on hand.

How many sheets should you order? (Use Excel's NORMSINV() function to find the correct critical value for the given -level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)

Dunstreet's Department Store would like to develop an inventory ordering policy of a 99 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 4,500 per year. The store is open 365 days per year. Every three weeks (21 days) inventory is counted and a new order is placed. It takes 6 days for the sheets to be delivered. Standard deviation of demand for the sheets is four per day. There are currently 200 sheets on hand.

Explanation / Answer

z @ 99% = 2.33

Safet Stock = Z * standard Deviation * Sqrt(Lead Time + Period) = 2.33 * 4 * Sqrt(6+ 21) = 48.428

Daily demand = 4500/365 = 12.33

Reorder Point = (Daily Demand * (Lead Time + Period)) + Safety Stock = (12.33 * (21 + 6)) + 48.428 = 332.88 + 48.428 = 381.305

Sheets to be ordered = Reorder point - sheets in hand = 381.305 - 200 = 181.305 = 181 units

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