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Default View 1-Screen 4Sciem 16-Screen Custom View SemartBook -) clerto.mheducation.com/hm.tpx Problem 7-7 Thomas Toys Ltd uses a periodic review inventory management system. One important item for the company s building blocks, which sell, on average, five sets per day. However the standard deviation of demand is two sets per day The company checks the status of inventory for buikding blocks every 17 days. When blocks are the supplier, it takes 21 days to be replenished. Thomas has just checked its inventory and found has 145 sets in stock. The company desires to maintain a 97 5 percent service level Use Table a. How many sets ot building blocks should Thornas Toys order? (Negative answer should be indra" , a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whoie number.) 2018 b. Do we re-order? No Yes Worksheet Probles 7- 04 Calcuiate inventory

Explanation / Answer

d = daily demand = 5
= 2 per day
P = review period = 17 days
L = lead time = 21 days

Std. deviation of lead time demand (L)= *sqrt(P+L) = 2*sqrt(17+21) = 12.33

At 97.5% service level, Z = NORMSINV(0.975) = 1.96 (We can use table also)

Order up to level (T) = d*(P+L) + Z*L = 5*(21+17) + 1.96*12.33 = 214.17

We have 145 sets in stock. So, the order quantity should be 214.17 - 145 = 69.17 or, 69 (nearest whole no.)

We reorder? Yes, with a quantity of 69

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