A computer products store stocks color laser printers, and the daily demand is normally distributed with a mean of 7.9 printers. The lead time to receive an order from the manufacturer is 15 days. The standard deviation of demand during this 15-day lead time is 34.5. Determine the reorder point that will achieve a 97.5% service level; that is, the store will have a 97.5% probability NOT running out of inventory. (Note: take z-score = +2 for 97.5% cumulative probability.)

Accepted Solution

Answer:Step-by-step explanation:The daily demand is a Normal distribution of mean 7.9 and certain standard deviation. The 15-day demand will be also a Normal distribution, with standard deviation of 34.5 and the mean can be obtained from the daily mean multiplying by 15. Thus, [tex] \mu = 15*7.9 = 118.5 [/tex] . Lets called X the random variable represented by the demand of printers on this 15-day period. In order not to run out of inventory with a high probability, we want a number S of stock such as the cummulative function FX satisfies FX(S) > 0.975 (the percentage divided by 100). In order to obtain this number S, we can first standarize X, we take [tex] Z = \frac{X-\mu}{\sigma} = \frac{X-118.5}{34.5} [/tex] . Z is a random variable with standar normal distribution. The cummulative function of Z, Ф, is a known function and its values are tabulated. I attached a pdf with the values of Ф below.[tex]P(X < S) = P(\frac{X-118.5}{34.5} < \frac{S-118.5}{34.5}) = P(Z < S') = Ф(S') [/tex] Where S' is (S-118.5)/34.5Hence, we want S' such that  Ф(S') < 0.975. By looking at the table, a small value of S' that satisfies this inequality is 1.96. If we take S' to be 1.96, then 1.96 = S' = (S-118.5)/34.5 Thus, S = 1.96*34.5 + 118.5 = 186.12Since we want S to be an integer, we take S = 187. If we have on stock 187 printers, then the probability of not running out of inventory is higher than 0.975I hope this helped you!