The purchasing manager for Alpa Enterprises requested the following data from the accounting department:
- Annual demand = 15,500;
-Cost of placing an order = $180;
Annual inventory holding costs = $26,4;
Unit cost = $132
Assume Alpha’s demand for an item during the lead time is normally distributed with a mean of 5,000 and a standard deviation of 50.
What reorder point should be used in order to average no more than one stock out every 20 re-order cycles?
If safety stock is 70, how often will a stock out occur during a re-order cycle?