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|
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%).