Question

Average lead time demand in a warehouse is 24000 units. The standard deviation of lead time demand is 5500 units. The warehouse orders 60000 units whenever inventory reaches 28000 units. What is the service level?
A) around 72%
B) around 81%
C) around 77%
D) around 89%
E) none of the above

Answer 1

Average lead time demand (dL) = 24000 units

Standard deviation of lead time demand (dL) = 5500 units

Reorder point = 28000 units

The service level can be calculated using the following equation

Reorder point = dL + (Z x dL)

=> 28000 = 24000 + (Z x 5500)

=> 28000-24000 = Z x 5500

=> 4000 = Z x 5500

=> Z = 4000/5500

=> Z = 0.73

The Z value of 0.73 corresponds to a service probability of 0.766 or 76.6% or rounded to 77%

Therefore the service level is around 77%

Answer is option c