An item that is managed with a periodic review system has av

An item that is managed with a periodic review system has average daily demand of 60 units with a standard deviation of 2. The order interval for this item has been set at 10 days. Lead time for this item averages 5 days, with a standard deviation of 0.5 days. Acceptable stockout risk has been established as 2.5%. At the latest count, there are 480 units in inventory. How many units should be ordered?

Solution

No. of units to be ordered = D*(P + LT) + Z*(LT*2^2 + D^2*.5^2)^.5 – available inventory

Value of Z at 97.5% = 1.96

No. of units to be ordered = 60*(10+5) + 1.96*(5*2^2 + 60^2*.5^2)^.5 – 480

No. of units to be ordered = 479.44 or 479 units