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%).