Question

Dunstreet's Department Store would like to develop an inventory ordering policy with a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets. Demand for white percale sheets is 4,500 per year. The store is open 365 days per year. Every four weeks (28 days) inventory is counted and a new order is placed. It takes 6 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 190 sheets on-hand. How many sheets should you order

Answer 1

277 sheets

Step-by-step explanation:

As per the data given in the question,

Z at 95% = 1.64485

Safety stock = Z × Standard deviation × (Lead time + Period)^(1÷ 2)

= 1.64485 × 5 × (6+28)^(1÷ 2)

= 47.955

Daily demand = 4500 ÷ 365

= 12.33

Reorder point = (Daily demand × (lead time + period)) + safety stock

= (12.33 × (28 + 6)) + 47.955

= 467.175

Sheets to be ordered = Reorder point - sheets in hand

= 467.175 - 190

= 277.175

= 277 sheets