The inventory planners at ABC Electronics have recently become aware that variation in the delivery of a key item from the supplier was causing a shortage problem. It has been decided that safety stock should be added to the order quantity to prevent stock out. After researching the item, the following planning data was detailed:
• Average demand per day is 25 units
• Replenishment lead time is 10 days
• Standard deviation of supply lead time is 3 days Standard deviation of demand is 2 units
• Target customer service level is 98 % (hint: 2.0537)
a. What would be the safety stock on this item?
b. What would be the new reorder point?
Inputs
Average Demand/day 25
Lead Time per Day 10
Standard Deviation of Demand (sD)/day 2
Target Customer Service Level 98%
Standard Deviation of Lead Time (sLT)/day 3
Answers: 2
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