Demand = 50,000 units/week Standard deviation of weekly demand = 15,000 units Av

Question

Demand = 50,000 units/week Standard deviation of weekly demand = 15,000 units Average lead time = 8 weeks Standard deviation of lead time: 3 weeks Cycleminusservice level = 80% A continuous review system is used to control inventory Refer to a normal distribution table --What safety stock should the firm use for this product? a) Greater than 0 units but less than or equal to 50,000 units b) Greater than 50,000 units but less than or equal to 100,000 units c) Greater than 100,000 units but less than or equal to 150,000 units d) Greater than 150,000 units but less than or equal to 200,000 units e) Greater than 200,000 units

Explanation / Answer

Safety stock= z* standard deviation * square root of lead time

       Service level= 80%

Z value for this service level is 0.842

Safety stock= 0.842 * 15000 * 2.83

= 35742.9 units

So answer is a) greater than 0 units but less than 50000 units

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