Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated b

Question

Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a normal distribution with a mean of 120 gallons per week and a standard deviation of 17.0 gallons per week. The new manager desires a service level of 85 percent. Lead time is 1 days, and the dairy is open seven days a week (Hint: work in terms of weeks).

What is the Z value for the desired service level?

How many (fraction of) "weeks" is the lead time?

If we use a continuous inventory system, what safety stock level would be consistent with the desired service level?

If we use a continuous inventory system, what ROP would be consistent with the desired service level?

Explanation / Answer

1)

Average weekly demand, d = 120 gallons

Std deviation of weekly demadn, ? = 17 gallons

1) Z value = NORMSINV(0.85) = 1.0364

2) Lead time, L = 1/7 fraction of weeks

Continuous inventory system

3) Safety stock, ss = z??L = 1.0364*17?(1/7)

= 6.66

4) ROP = d*L + safety stock = 120*(1/7)+6.67 = 23.80 gallons

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