A bakery buys sugar from a big distributor to use in baking cakes. Typically, they use...

A bakery buys sugar from a big distributor to use in baking cakes. Typically, they use 24 pounds of sugar in a day. But depending on the day, they may use a little bit less or more. It is estimated that the standard deviation of demand for sugar is 4 lbs per day. It takes 9 days from the time the bakery orders sugar until the distributor delivers the sugar. The manager wants to have a service level of 0.92. Determine each of the following, assuming that demand is distributed normally.

Z value for the intended service level?
The safety stock that will provide the intended service level?
The ROP that will provide the intended service level?

Solutions

Expert Solution

Daily demand (d) = 24

Standard deviation of demand (sigmad) = 4

Lead time (L) = 9

Expected service level = 0.92 or 92%

Corresponding z value for intended service level (from the standard normal table) = 1.41

Safety stock formula

SS = z*sigmad*sqrt(L)

Thus safety stock is

SS = 1.41*4*sqrt(9) = 16.92 pounds

ROP formula

ROP = d*L + SS

Thus reorder point will be

ROP = 24*9 + 16.92 = 232.92 pounds

Amanda K answered 1 year ago

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