OfficeShop experiences a oneweek order time to restock its H

OfficeShop experiences a one-week order time to restock its HP printer cartridges. During this reorder time, also known as lead time, OfficeShop wants to ensure a high level of customer service by not running out of cartridges. Suppose the average lead time demand for a particular HP cartridge is 15 cartridges. OfficeShop makes a restocking order when there are 18 cartridges on the shelf. In practice, the amount of inventory held on the shelf during the lead time is known as the reorder point. Firms use the term service level to indicate the percentage of the time that the amount of inventory is sufficient to meet demand during the reorder period.

Fill in the blank.

Using software and the Poisson distribution, what would be the reorder point so that the service level is minimally 90%

Solution

lemda = 15

Reorder point = 18

Prob (x serves minimum 90%)

= P(X<=x) =0.90

We find from Poisson table cum prob for 20 >0.90

Hence Reorder point = 20 cartridges.