Safety Stock 2b1a6x

Safety Stocks  Safety stock  buffer added to on hand inventory during lead time

 Stockout  an inventory shortage

 Service level  probability that the inventory available during lead time will meet demand

Variable Demand with a Reorder Point Inventory level

Q

Reorder point, R

0

LT

LT Time

Inventory level

Reorder Point with a Safety Stock

Q Reorder point, R

Safety Stock

0

LT

LT Time

Reorder Point With Variable Demand R = dL + zσ

d

L

where d = average daily demand L = lead time σ d = the standard deviation of daily demand z = number of standard deviations corresponding to the service level probability zσ d L = safety stock

Reorder Point for a Service Level Probability of meeting demand during lead time = service level

Probability of a stockout

Safety stock zσ dL Demand

d

L R

Reorder Point for Variable Demand The carpet store wants a reorder point with a 95% service level and a 5% stockout probability d = 30 yards per day L = 10 days σ d = 5 yards per day For a 95% service level, z = 1.65 R = dL + z σ

d

L

Safety stock = z σ

d

L

= 30(10) + (1.65)(5)( 10)

= (1.65)(5)( 10)

= 326.1 yards

= 26.1 yards

Order Quantity for a Periodic Inventory System Q = d(tb + L) + zσ

d

tb + L - I

where

σ zσ

d

d tb L d

= average demand rate = the fixed time between orders = lead time = standard deviation of demand

tb + L = safety stock I = inventory level

Fixed-Period Model with Variable Demand d = 6 bottles per day σ d = 1.2 bottles tb = 60 days L = 5 days I = 8 bottles z = 1.65 (for a 95% service level) Q = d(tb + L) + zσ

d

tb + L - I

= (6)(60 + 5) + (1.65)(1.2) = 397.96 bottles

60 + 5 - 8