Question

H & K Electronic Warehouse sells a 12-pack of AAA batteries, and this is a very popular item. De- mand for this is normally distributed, with an aver- age of 50 packs per day and a standard deviation of 16. The average delivery time is five days, with a standard deviation of two days. Delivery time has been found to be normally distributed. A 96% ser- vice level is desired.

(a) What is the standard deviation of demand during the lead time?

(b) How much safety stock should be carried, and what should be the reorder point?

Show entry in Excel QM

Answer 1

The output using Excel QM is:

Models: Either daily demand, lead time or both are variable
Data
Average daily demand	50
Standard deviation of daily demand	16
Average lead time (in days)	5
Standard deviation of lead time, σLT	2
Service level (% of demand met)	96.00%
Results
Z-value	1.75
Average demand during lead time	250
Standard deviation of demand during lead time, σdLT	106.21
Safety stock	185.94
Reorder point	435.94

(a) What is the standard deviation of demand during the lead time?

106.21

(b) How much safety stock should be carried, and what should be the reorder point?

Safety stock = 185.94

Reorder point = 435.94