a. Using the 5 years of demand data (i.e., no forecast values) as an estimate of

Question

a. Using the 5 years of demand data (i.e., no forecast values) as an estimate of future annual demand what is the safety-stock to be maintained by this company for a service level of 95%?

SL = 100-(100*o*e(z))/Q    where Q = EOQ   SS=Z*1.25*MAD

As seen on the data the EOQ for the 5 years is 788

Table 1 Beta-0.5, Gamma-0.5 Alpha MAD 0.2 57.5 0.4 51.5 0.6 45.9 0.8 44.1 47.1 Table 2 Alpha = best, Gamma-0.5 Beta 0.2 44.9 47.9 0.5 0.8 MAD 48.7 Table 3 Alpha -best, Beta -0.5 Gamma MAD 0.2 0.5 0.8 49.3 47.9 46.7 MAD Equation for Best Alpha| 44. Lowest MAD = Best Value Best Alpha Best Beta Best Gamma 0.8 0.2 0.8

Explanation / Answer

Z for 95% service level = 1.6449

L = 0.69 months

Std Dev of demand per month = 266.43

Safety Stock = Z * Std Dev * sqrt ( Lead time) = 1.6449 * 266.43 * sqrt ( 0.69 )

Safety Stock = 364.028 ~ 364 units

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