Operations Mgmt W2:A2ii
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%).
Support your responses with examples.
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