Problem: A beer distributor reorders when a stock item drops to a reorder point. Reorder points include statistical safety stocks with the service level set at 95%. For MGD beer, the forecast usage for the next 2 weeks is 500 cases and the standard deviation of demand has been 137 cases (for 2 week period) Purchase lead time is one week ( a 5 day workweek)
Q1. What is the safety stock? How many working days supply is that?
Q2. What is the ROP?
Q3. How many times larger would the safety stock have to be provided 99% service to MGD customers? How many working days supply does the 99% level provide?
Q4. Statistical safety stock protects against demand variability. What other two factors do you think are especially important influences on size of safety stock for MGD beer? Explain.