Calculate the order point and the safety stock


Task:

A company produces and stocks computer printers in its finished-goods warehouse. These ‘demand during lead time’ (DDLT) historical data are believed to be representative of future demand for one printer model:

Actual DDLT

Frequency

Actual DDLT

Frequency

0-29

0

70-79

0.25

30-39

0.10

80-89

0.10

40-49

0.10

90-99

0.05

50-59

0.15

100-109

0.05

60-69

0.20

110-120

0


Calculate (a) the order point AND (b) the safety stock for EACH of the following scenarios:

1. If at least a 90% service level is to be provided for these printers.

2. If the DDLT for the printer is actually normally distributed with a mean of 65 and a standard deviation of 10, and a service level of 90% is to be provided for these printers.

3. If the lead time for these printers is so stable that the lead time can be assumed  to be a constant 6.5 days, the demand per day is normally distributed with a mean of 10 and a standard deviation of 2, and at least a service level of 90% is to be provided for these printers.

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Finance Basics: Calculate the order point and the safety stock
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