Optimal reorder level and expected safety stock
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The probability distribution of demand during lead time of a certain product is given below.
Demand During Lead Time Probability
240 0.05
260 0.10
280 0.20
300 0.30
320 0.20
340 0.10
360 0.05
The following additional data is available:
Cost per unit = $10
Delivery Charges per unit = $1.50
Selling price per unit = $19
Salvage value = $7 per unit
a) Determine the optimal reorder level.
b) Determine the expected safety stock.
c) What salvage value will increase the reorder level to 340 units?
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Solution Summary
Formula and computation given.
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a) Ce = 10+1.5-7 = $ 4.5 /unit
Cs = 19-10-1.5 = $7.5 /unit
SL = Cs/(Cs+Ce) = 0.63. ...
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