The purchasing manager for Alpa Enterprises requested the following data from the accounting department:
Annual demand = 15,500; Cost of placing an order = £180; Annual inventory holding costs = 20 percent; Unit cost = £78
Assume Alpha’s demand for an item during the lead time is normally distributed with a mean of 5,000 and a standard deviation of 50. What reorder point should be used in order to average no more than one stock out every 20 re-order cycles? If safety stock is 70, how often will a stock out occur during a re-order cycle?