# Z 156 thus reorder point r 20077 156307 7 200 1769

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z = 1.56Thus, reorder point R = (200/7)*7 + 1.56*(30/7)* √7 = 200 + 17.69 = 217.69 i.e. Kelly’s will place an order when inventory level reaches 218 units.When demand is variable, there is chance of shortage (or stock out). Shortage can occur during the need time. I firm needs to maintain safety stock to avoid the risk of stock out. The safety stock is the additional inventory a firm maintains above expected demand to avoid stock out. Firms use service level to determine safety stock. A firm decides what probability it can afford of stock out. The service level is probability of no stock out during lead time. This probability is called service level. (Russell & Taylor, 2011) For example, a service level of 90% means there is 0.90 probability that firm will meet demand during lead time. It means, the probability of stock out is 10%.Safety stock is determined as:Safety stock = z*σ*√LL = lead timeσ = Standard deviation of daily demand
Bell Computer Company Forecasts data set, Case Study Scenarios7z = Number of standard deviations corresponding to the service level probabilityIn this case, L = 7 daysσ = 30/7 Maximum accepted probability of stock out is 6%. It means, service level is 0.94Using z-table, corresponding z- value is determined.z = 1.56Thus, Safety stock =1.56*(30/7)* √7 = 17.69 = 18 unitsThus, Kelly’s should maintain 18 units safety stock of HP laser printer to avoid stock out.
Bell Computer Company Forecasts data set, Case Study Scenarios8ReferencesHossein, P. (2014). Introduction to Probability, Statistics, and Random Processes. Kappa Research. Russell, R. S., Taylor, B. W. (2011). Operation Management.(7th ed.). Wiley Publication. John Wiley & Sons.