Dunstreet\'s Department Store would like to develop an inventory ordering policy

Question

Dunstreet's Department Store would like to develop an inventory ordering policy of a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets.

Demand for white percale sheets is 5,000 per year. The store is open 365 days per year. Every two weeks (14) days) inventory is counted and a new order is placed. It takes 10 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 150 sheets on hand.

How many sheets should you order?

Explanation / Answer

This is a periodic review inventory policy:

Yearly Demand D 5000 SD per day /day 5 Review Period R(Days) 14 Lead Time L 10 Inv in Hand 150 Q =D /day *R 191.78 R+L(days) =14+10 24.00 n =365/(R+L) 11.04 DL+R =D/n 452.83 DL+R =/day*n 16.61 k where CSL = 0.95 1.644 Order upto units S = DL+R + kDL+R 480.14 Policy : Order upto 480.14 units every 14 days

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