Question 12.EX.14: ROP FOR VARIABLE DEMAND AND VARIABLE LEAD TIME. The Circuit ...

ROP FOR VARIABLE DEMAND AND VARIABLE LEAD TIME. The Circuit Town store’s most popular item is six-packs of 9-volt batteries. About 150 packs are sold per day, following a normal distribution with a standard deviation of 16 packs. Batteries are ordered from an out-of-state distributor; lead time is normally distributed with an average of 5 days and a standard deviation of 1 day. To maintain a 95% service level, what ROP is appropriate?
APPROACH \blacktriangleright Determine a quantity at which to reorder by applying Equation (12-17) to the following
data:
Average daily demand = 150 packs
Standard deviation of demand = \sigma_d = 16 packs
Average lead time = 5 days
Standard deviation of lead time = \sigma_{LT} = 1 day
Service level = 95%, so Z = 1.645 (from Appendix I or the Excel formula = NORMSINV(.95))

ROP = (Average daily demand × Average lead time in days) + Z\sigma_{dLT}                                             (12-17)