Daily demand for a product is 160 units, with a standard deviation of 35 units. The product is ordered on a pre-established (fixed) schedule and the review period is 5 days and the lead time is 10 days. At the time of review, there are 30 units in stock. If 99 percent service probability is desired, how many units should be ordered?

2686

Explanation:

Given that :

Daily demand (D) = 160

Standard deviation (s) = 35

Review period (T) = 5 days

Lead time (L) = 10 days

Number in stock (I) = 30 units

Service probability α = 99%

Quantity to order Q;

Q = D(T + L) + Z*s + √(T + L) - 1

Zscore p(Z < 0.99) = 2.326 = 2.33(Z probability calculator)

Q = 160(5 + 10) + 2.33 * 35 * √(10 + 5) - 30

Q = 160(15) + (2.33 * 35 * 3.8729833) - 30

Q = 2400 + 315.841788115 - 30

Q = 2685.841788115

Q = 2686

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