Chapter 6 Part 3

Chapter 6 Part 3 - Inventory Decision Making Chapter 6...

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1 1 Inventory Decision Making Chapter 6 (Part 3) 2 Service Level The service level represents the desired probability of not running out of stock. Example: A distributor of lawn-care products has found from sales records that annual demand for 27-10-10 fertilizer with weed killer is normally distributed with mean of 85 tons and variance of 169 tons. a) What is the probability that the annual demand exceeds 95 tons? b) What quantity (i.e., how many tons) should be produced so that there is a five percent chance of running out of stock?
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2 3 P(NRO) ~ probability of not running out of stock 0 Using the Normal Distribution 0 Z ? P(RO) = 1 P(NRO) If given a probability, then look up the Z value using the probability and calculate X. Z = X – X If given the value of X, then calculate Z and determine the appropriate probability. P(RO) ~ probability of running out of stock 4 Two perspectives involving probabilistic conditions (i.e., uncertainty) will be considered to determine the reorder point (ROP) for the basic EOQ model.
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Chapter 6 Part 3 - Inventory Decision Making Chapter 6...

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