Safety Stock and Reorder Point

Safety Stock and Reorder Point

 

Consider the following data.

Inventory Item	Average Demand (Annual)	Sigma (Std. Dev.) of Demand During Lead Time	Item Unit Cost
F-11001	15,000	100	$250.00
K-12002	100,000	300	$2.00
L-13003	250,000	200	$0.20
N-14004	300,000	400	$1.00
P-21001	50,000	60	$125.00
S-22002	80,000	75	$30.00

Note: All items are independent demand items.

Based on the above data:

• Calculate the safety stock quantities and the inventory cost associated with safety stock (based on the item unit cost) for the inventory items at four different service levels (50%, 80%, 90%, and 95%).


• Develop a table to present the inventory quantities and the safety stock costs at each service level.


• Assuming that demand occurs at a steady pace every month (in other words, there is no seasonality or cyclical change in the level of demand), calculate the reorder point for each item assuming a lead time of two months and a service level of 90%.


• Develop a table to present the reorder points for all products under these conditions (two month lead time and service level of 90%).

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