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Yummy restaurant uses an average of 50 cans of green beans each week. Weekly usage of the green beans has a standard deviation of 3 cans. The restaurant manager is willing to accept no more than a 10 percent risk of stockout during lead time, which is two weeks. Assume the distribution of usage is normal. Find the reorder point. How much of this is safety stock? What is the service level?

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Answer:

Weekly Demand=50

Standard Deviation=3

Reorder Point = Demand During Lead Time * Lead Time + Safety Stock  

Safety Stock = Service level*Standard Deviation  

Service Level is 90% as the stock-out is 10%  

Sigma Value for 90% service Level = 1.645  

Safety Stock = 1.645*3=4.935

Re-order point = 50*2=100

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