Ie the reorder point and safety stock. 9. A corner dru g store stocks Betadine,

Question

Ie the reorder point and safety stock. 9. A corner dru g store stocks Betadine, an antiseptic, available over the counter. The average demand for the antiseptic is 20 tubes per day with a standard deviation of three tubes. A local representative of Betadine's supplier visits the store once in every 60 days, checks the stock, and makes orders. During a particular visit the representative notices that there were nine tubes on the shelf. The lead time to receive an order is a week. If the store aims to maintain a 99% service level, what is the optimal order size that the representative should place to the drug company?

Explanation / Answer

Given,

Average Demad per day, D = 20 tubes

Supplier visits every 60 days

Standard Deviation, SD = 3 tubes

Lead Time, LT = 7 days

Service Level, Z = 99%

9 tubes found on the shelf

Therefore, 60 days of stock + 7 days of stock should be present in the store which is (60*20+7*20) = 1340 tubes

But, the service level is 99% and 9 tubes are present already.

Hence, Optimal Order Size = 0.99*(60*20+7*20) - 9 = 1326.6 - 9 = 1317.6 (approx 1318 tubes)

Therefore, the representative should place 1318 tubes to the drug company.

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