The demand of the winter jacket varies over the week (7 days). The average demand per week is 50 items. Given that the retailer’s order lead time is two days, the average lead time demand is 16 items and the standard deviation during lead time is 3 items. Acceptable stock-out risk during is considered 4% (96% service level).
[Hints: for 95% service level, z = 1.64, you need to find Z value for 96% service level]
What amount of safety stock is appropriate?
When should this item be reordered (ROP)?
Assuming the retailer’s order interval is one week and lead time is same as two days. The average on-hand inventory is five items at the end of each week.
[Hints: You will need to determine the standard deviation for the time period between order placement (i.e., one week) using the standard deviation for lead time period.]
Determine the order quantities using fixed order interval model
Determine the reorder point (ROP) using variable demand model