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 95 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 3,400 per year. The store is open 365 days per year. Every two weeks (14 days) inventory is counted and a new order is placed. It takes 9 days for the sheets to be delivered. Standard deviation of demand for the sheets is seven per day. There are currently 120 sheets on hand. How many sheets should you order? (Use Excel's NORMSINV0 function to find the correct critical value for the given a-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Number of sheets

Explanation / Answer

Annual demand = 3400 , Daily demand, d = 3400/365 = 9.31

Time between order review , T = 14 days , Lead time, L = 9 days

Currenty inventory, I = 120

Standard deviation of daily demand,s = 7

Z-value at 95% probability = 1.96

Q = d* (T+L) + Z* s(T+L)* - I

s(T+L) = s * sqrt (T+L) = 7 * sqrt (23) = 33.57

Q = 9.31* (23) + 1.96 * 33.57 - 120 = 159.92 = ~160

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