Case Study:
Safety Stock and Reorder Point
Consider the following data.
|
Inventory Item
|
Average Demand (Annual)
|
Sigma (Std. Dev.) of Demand During Lead Time
|
Item Unit Cost
|
|
F-11001
|
15,000
|
100
|
$250.00
|
|
K-12002
|
100,000
|
300
|
$2.00
|
|
L-13003
|
250,000
|
200
|
$0.20
|
|
N-14004
|
300,000
|
400
|
$1.00
|
|
P-21001
|
50,000
|
60
|
$125.00
|
|
S-22002
|
80,000
|
75
|
$30.00
|
Note: All items are independent demand items.
Based on the above data:
1. Calculate the safety stock quantities and the inventory cost associated with safety stock (based on the item unit cost) for the inventory items at four different service levels (50%, 80%, 90%, and 95%).
2. Develop a table to present the inventory quantities and the safety stock costs at each service level.
3. Assuming that demand occurs at a steady pace every month (in other words, there is no seasonality or cyclical change in the level of demand), calculate the reorder point for each item assuming a lead time of two months and a service level of 90%.
4. Develop a table to present the reorder points for all products under these conditions (two month lead time and service level of 90%).
Please review the attachment:
Attachment:- Template.rar