Question

A product's demand per period follows a normal distribution with mean of 60 and standard deviation of 10. The lead time is 3 periods. What order-up-to level should be used to achieve at least a 90% in-stock probability?

Answer 1

Answer:

209

Step-by-step explanation:

Since the lead time is 2 periods at the time of order, the stocks should last for 3 periods with the 90% probability.

The z-value of 90$ in stock probability = 1.7

Mean of the demand over is (1 + 1 + 1 )  or (2+1 which is 3)

                                                           = 60 x 3 = 180

Now the standard deviation of demand over the three periods = 17.3

Therefore, the order up level would be  = 180 + ( 1.7 x 17.3 )

                                                                   = 209