Presume that Apex Ltd carries a modern white
kitchen ceiling lamp that is quite popular. The anticipated
demand during lead-time can be approximated by a normal curve
having a mean of 180 units and a standard deviation of 40 units.
What safety stock should Apex carry to achieve a 95% service
level?
To find the safety stock for a 95% service level
it is necessary to calculate the 95th percentile on the normal
curve. Using the standard Normal table from the text, we find
the Z value for 0.95 is 1.65 standard units. The safety stock
is then given by:
| EOQ |
= Sqrt (2AD/H) |
|
= Sqrt(2 x 5000 x 1000/(0.2
x200)) |
|
= Sqrt(10,000 x 1000/40) |
|
= Sqrt(10,000 x 25)
= 100 x 5 = 500 units |
|
Total variable cost when EOQ is ordered:
| TVC |
= Inv Holding + ordering
cost |
|
= (0.2)(Mu 200)(500/2)
+ Mu 1,000(5,000/500) |
|
= Mu 40(250) + Mu 1,000(10) |
|
= Mu 10,000 + Mu 10,000
= Mu 20,000 |
|
|
|
