ASSIGNMENT 4

Group 7
1. Muhammad Arifin Julian (1606879823)
2. Fachryal Hiltansyah (1606870521)
3. Rohmat Setiawan (1806244540)
 SUMMARY

Reorder point when Both Demand and Lead Time Are Variable
 REORDER POINT

• The level of inventory which triggers an action to replenish that particular

inventory stock.
• It is a technique to determine when to order
• Under deterministic conditions when both demand and lead time are constant,
the reorder point is set equal to lead time x demand
• under probabilistic conditions when both demand and lead time varies, the
reorder point often includes safety stock
 SAFETY STOCK

• Is the minimum level of inventory that is held as a protection against shortage

due to fluctuation in demand.
• It also determine the chance of a stockout during lead time. The complement
of this chance is called the service level
 SERVICE LEVEL

• Is the probability of not incurring a stockout during lead time

• Service level of 90% means that there is a .90 probability that demand will be
met during lead time and .10 probability of a stockout
REORDER POINT WHEN BOTH DEMAND
AND LEAD TIME ARE VARIABLE

𝑅𝑂𝑃 = Average daily demand ∗ Average lead time in days + Safety Stock
𝑆𝑎𝑓𝑒𝑡𝑦 𝑆𝑡𝑜𝑐𝑘 = 𝑍 ∗ 𝜎𝑑𝐿𝑇
Where:
σd = Standar Deviation of demand per day
𝜎𝐿𝑇 = Standard Deviation of lead time in days
PROBLEMS

Number 12.48
 QUESTION

Gainesville Cigar stocks Cuban cigars that have variable lead times because of the
difficulty in importing the product: lead time is normally distributed with an
average of 6 weeks and a standard deviation of 2 weeks. Demand is also a
variable and normally distributed with a mean of 200 cigars per week and a
standard deviation of 25 cigars.
a. For a 90% service level, what is the ROP?
b. What is the ROP for a 95% service level?
c. Explain what these two service levels mean. Which is preferable?
 GIVEN

• Average daily demand = 200 cigars per week

• Standard deviation of demand (σd) = 25 cigars per week
• Average lead time = 6 weeks
• Standard deviation of lead time (𝜎𝐿𝑇 ) = 2 weeks
• Service level =
a. 90%, so Z = 1.282 (from Appendix I or the Excel formula = NORMSINV(.95))
b. 95%, so Z = 1.645 (from Appendix I or the Excel formula = NORMSINV(.95))
 SOLUTION

a) A

𝜎𝑑𝐿𝑇 = 6 𝑥 252 + ( 200 2 𝑥 22 ) = 404,6≈405

ROP (90%) = (200 X 6) + 1,282( 405) = 1719 cigars
 SOLUTION

b.) 𝜎𝑑𝐿𝑇 = 6 𝑥 252 + ( 200 2 𝑥 22 ) = 404,6≈405

ROP (95%) = (200 X 6) + 1,645( 405) = 1866 cigars

c.) For service level 90%, Reorder Point (ROP) is done when the
remaining stock is 1719 cigars.
For service level 95%, Reorder Point (ROP) is done when the
remaining stock is 1866 cigars.
We prefer the ROP for service level 95%, because it would be safer if the
demand of cigars is suddenly rises (in this case both lead time and demand are
variable).
THANK YOU!