Demand for an item averages 130 units per day with a standard deviation of 4. Lead time for this item averages 6 days with a standard deviation of 0.2 days. What reorder point would we use if our acceptable risk of a stockout is 5%?
Note 1: Round intermediate and final calculations to two decimal places.
Note 2: For 10% stockout risk use Z = 1.28. For 5% stockout risk use Z = 1.645. For 2.5% stockout risk use Z = 1.96.
Expert Answer
https://latex.codecogs.com/gif.latex?ROP%20%3D%20%5Cbar%7Bd%7D%5Cbar%7Bl%7D%20+%20Z%20%5Csqrt%7BL%5Csigma%20_%7Bd%7D%5E%7B2%7D+%20%5Cbar%7Bd%7D%5E%7B2%7D%5Csigma%20_%7BL%7D%5E%7B2%7D%7D
ROP = 130 * 6 + 1.645 https://latex.codecogs.com/gif.latex?%5Csqrt%7B6*4%20+%20130%5E%7B2%7D%20*%200.2%5E%7B2%7D%7D
ROP = 823.52