Posted: September 10th, 2021

Calculate the safety stock quantities and the inventory cost associated with safety stock (based on the item unit cost) for the inventory items at four different service levels

Safety Stock and Reorder Point
Consider the following data.
Inventory Item Average Demand (Annual) Sigma (Std. Dev.) of Demand During Lead Time Item Unit Cost
F-11001 15,000 100 $250.00
K-12002 100,000 300 $2.00
L-13003 250,000 200 $0.20
N-14004 300,000 400 $1.00
P-21001 50,000 60 $125.00
S-22002 80,000 75 $30.00
Note: All items are independent demand items.

Based on the above data:
• Calculate the safety stock quantities and the inventory cost associated with safety stock (based on the item unit cost) for the inventory items at four different service levels (50%, 80%, 90%, and 95%).
• Develop a table to present the inventory quantities and the safety stock costs at each service level.
• Assuming that demand occurs at a steady pace every month (in other words, there is no seasonality or cyclical change in the level of demand), calculate the reorder point for each item assuming a lead time of two months and a service level of 90%.
• Develop a table to present the reorder points for all products under these conditions (two month lead time and service level of 90%).

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