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Assume deterministic lead time: LTTimeInventoryQQLTLTLTQShortage occurs when the demand during lead time exceeds ROP. Order quantity is fixed, order interval varies.What should be the value of Q ?ILIPWhat should be the value of ROP ?EOQ or Truck load or based on experienceDemand during LT, Service Level Lead timeLTTime between placing and receiving order.On Hand InventoryOHPhysical stockInventory LevelILIL = OH –Quantity on backorderInventory PositionIPIP = IL+ Quantity in transit
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Review of Terms•Meanaverage•Standard deviation is a widely used measurement of variability or dispersion used in statistics. It shows how much variation there is from the mean. •Z score In statistics, a standard score indicates how many standard deviations an observation or datum is above or below the mean.•Service Level (SL) “The desired probability of not running out of stock in any one ordering cycle.” “The probability that demand will not exceed supply during lead time”“ the amount of stock on hand will be sufficient to meet demand.” A SL of 95% implies that there is a 95% probability that demand will be satisfied –thus a 5% risk of a stock out.20