Question

10. Target sells toys and chooses to use a min max inventory control system to place orders for new inventory. The parameters of the situation are: AVG = 2,000 toys per week STD = 400 toys per week L = 5 weeks We want a 95% chance of not having a stockout during lead time so our service level is 95% and 1-ais 5%. The value of the standard normal distribution which corresponds to covering 95% of the area of the distribution is 1.645

a. Whenever the store manager checks inventory and finds it below 11,472 toys, the manager orders the difference between 11,472 and the current inventory.

b. Whenever the store manager checks inventory and finds it above 11,472 toys, the manager orders the difference between 11,472 and the current inventory and orders that many units.

c. Whenever the store manager checks inventory and finds it below 10,000 toys, the manager orders the difference between 10,000 and the current inventory.

d. Whenever the store manager checks inventory and finds it below 11,472 toys but higher than 10,000 toys, the manager orders 1,472 units.

Answer 1

Reorder point = d*L + z*sigma*sqrt(L)

Here

d = 2000

L = 5

z = 1.645

sigma = 400

Thus

Max level = 2000*5 + 1.645*400*sqrt(5) = 11471.33 or 11472 units

Min level = 2000*5 = 10000

This means the correct answer is d.