Problem 1
Consider the following inventory management scenario: Our bottling plant uses approximately 1000 plastic bottlesper day (normally distributed), while daily usage has a standard deviation of 70. Order lead time is 2 days (constant).
1. What is the average demand during lead time for this item?
2. What is the standard deviation of demand during lead time for this item ?
3. If I use an order point system, what reorder point (ROP) would result in 100 units of safety stock?
4. What is the predicted service level using that ROP value?
5. What ROP value is needed to provide 99% predicted service level? How much safety stock is associated with this policy?
Problem 2
Consider the plastic bottles demand pattern from question 1. Suppose I plan to instead set up a periodic review inventory system, and I will order this item every 7 days. There is still a 2 day lead time.
1. The "order up to" level T must cover what protection interval ?
2. What is the average demand during the protection interval?
3. What is the standard deviation of demand during the protection interval?
4. Using this periodic review system, what order up to level (T) would result in 100 units of safety stock?
5. What is the predicted service level under this safety stock value?
6. What order up to level is needed to provide 99% predicted service level? How much safety stock is associated with this policy?