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Question 12.SP.8: The daily demand for 52” flat-screen TVs at Sarah’s Discount...

The daily demand for 52” flat-screen TVs at Sarah’s Discount Emporium is normally distributed, with an average of 5 and a standard deviation of 2 units. The lead time for receiving a shipment of new TVs is 10 days and is fairly constant. Determine the reorder point and safety stock for a 95% service level.

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The ROP for this variable demand and constant lead time model uses Equation (12-15):

ROP = (Average daily demand × Lead time in days) + Z\sigma_{dLT}

where \sigma_{dLT} = \sigma_d \sqrt{Lead  time}

So, with Z = 1.645,

ROP = (5 × 10) + 1.645(2)\sqrt{10}
= 50 + 10.4 = 60.4 ≅ 60 TVs, or rounded up to 61 TVs

The safety stock is 10.4, which can be rounded up to 11 TVs.

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