Question

The Acme Catalogue Company resells a wide variety of products that they purchase from other companies. One of their best selling products has an average demand of 200 units per week and a standard deviation of demand equal to 50 units per week. The manufacturer of the product, CTI Incorporated, is very reliable with their shipments for Acme, but requires a 10 day lead time. If Acme wishes to achieve a 95% service level, what reorder point should they use

Answer 1

If Acme wishes to achieve a 95% service level, 384 reorder point they use

Solution:

Demand during lead time = 200/7 * 10 = 285.7

Z of service level = 1.645 (95%-50%=45% look up on table)

Std Dev of lead time = $\frac{50^{2}}{7(10)}$

                                  = 3571.428

$\sqrt{3571.428}$ = 59.76

Therefore, ROP = 285.7 +(1.645*59.76) = 384