Annual demand for a product is 13,000 units; weekly demand is 250 units with a standard deviation of 40 units. The cost of placing an order is $100, and the time from ordering to receipt is four weeks. The annual inventory carrying cost is $0.65 per unit. To provide a 98 percent service probability, what must the reorder point be?
Weekly demand=250 units
Lead time = 4 weeks
Expected demand during lead time =Lead time*Weekly Demand= 4*250=1000 units ...
Solution describes the methodology to calculate reorder point in the given case.