d is 2. Daily demand follows an exponential distribution with a mean of 60. The lead-time perio 20 days. Calculate the necessary reorder point to achieve a fill rate of 95%. The annual demand is 15,000 units, the ordering cost is $100, and the holding cost is $5.00 per unit per year
Expert Answer
Mean demand, λ = 60
Lead time, L = 20
Lead time demand, λL = 60*20 = 1200
For exponential distribution, SD of lead time demand, σ = λ = 1200
Economic order quantity, Q = SQRT(2*15000*100/5) = 775
Fill rate, β = 95%
Loss function, L = (1-β)Q/σ = (1-.95)*775/1200
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