Your firm is planning to introduce a new product line. Your task is to determine
ID: 334798 • Letter: Y
Question
Your firm is planning to introduce a new product line. Your task is to determine the inventory implications of the new product. The typical product will ship an average of 20 units per day from the firm’s central DC. Historical sales patterns indicate that the standard deviation of daily sales should be approximately 3. The typical performance cycle for comparable products has been a mean of 7 days and a standard deviation of 2.
a. Assuming a replenishment quantity from the plant of 200 units, what are the safety stock and resulting average inventory for a 95 percent case fill rate?
b. What are the inventory implications (safety stock and average inventory) of increasing the case fill rate objective to 99 percent?
Explanation / Answer
Given Information:
daily demand (d)=20
Stand Deviation of Demand (SDd) = 3
Lead time (Lt) = 7
Standard deviation of Lead time (SDL) = 2
a. Service level=0.95
z= 1.65
ROP= d x Lt + z x (SDd^2 x Lt + SDL^2 x d^2)^0.5 = 20*7 +1.65 * (3*3*7 + 2*2*20*20)^0.5 = 140+67=207
Safety Stock =67
b Service level = 0.99
z=2.33
ROP= ROP= d x Lt + z x (SDd^2 x Lt + SDL^2 x d^2)^0.5 = 20*7 +2.33 * (3*3*7 + 2*2*20*20)^0.5=140 + 95= 235
Safety Stock is 95
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