Answer to Question #113947 in Management for Ammar Ahmad

Question

The ABC Company finds that to its surprise, the material used in many of its items has a constant usage of 200 units per week. The supplier will only deliver this material in lots of 2000 units. The lead time for delivery from the supplier has been found to be normally distributed with a mean of 4 weeks and a standard deviation of 1 week. The company wishes to be out of stock of the items for no more than 3 days at most of the 250 days per year that it operates. What safety stock should it carry for this item?

Answer 1

Safety stock= (desired service level) * (Lead time Standard deviation) * (demand average)

Taking the desired service as 95%- the desired level is 1.65

therefore, stock safety= 1.65*7 days * (200/7)

= 330 Units for use before reordering