table : http://lectures.mhhe.com/connect/0073525251/tables/P12-19.jpg Given this

Question

table : http://lectures.mhhe.com/connect/0073525251/tables/P12-19.jpg

Given this information Lead-time demand 590 pounds Standard deviation of lead time demand = 43 pounds (Assume normality.) Acceptable stockout risk during lead time 2 percent Use Table. a. What amount of safety stock is appropriate? (Round your answer to the nearest whole number.) Safety stock units b. How much of this item should be reordered? (Round your answer to the nearest whole number.) ROP units what risk of stockout would result from a decision not to have any safety stock? (Omit the "%" sign in your response.) Stockout risk

Explanation / Answer

Since accepted stockout risk is 2 percent , in stock probability will be 0.98 ( i.e service level of 98 %)

Corresponding Z value for 0.98 probability = 2.053

Required safety stock = Z value x Standard deviation of lead time demand = 2.053 x 43 = 88.279 ( 89 rounded to next higher whole number)

Reorder point = Lead time demand + Safety stock = 590 + 89 = 679

Decision of not having any safety stock means safety stock = 0

If safety stock = 0 and Safety stock = Z value x Standard deviation of lead time demand , therefore , Z value = 0

Corresponding probability for Z =0 will be 0.50,

Therefore stock out risk would be 50%

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