The Paramount Paper company produces paper from wood pulp ordered from a lumber products firm. The paper com-pany’s daily demand for wood pulp is normally distributed, with a mean of 9000 pounds and a standard deviation of1900 pounds. Lead time is eight days. Determine the reorderpoint if the paper company wants to limit the probability of astockout and work stoppage to 2%.
The Paramount Paper company produces paper from wood
pulp ordered from a lumber products firm. The paper com-
pany’s daily demand for wood pulp is
with a mean of 9000 pounds and a standard deviation of
1900 pounds. Lead time is eight days. Determine the reorder
point if the paper company wants to limit the probability of a
stockout and work stoppage to 2%.
Given:
Mean = 9000
Standard deviation = 1900
Lead time = 8 days
Probability = 2% = 0.02
Formula Used:
Reorder point = Demand during lead time + Safety stock
= (Lead time in days) (Demand per day) + Z(Standard deviation) (Lead time in days)0.5
Explanation:
For Z-value Using MS Excel
Risk region = 0.02
Non-risk region = 1-0.02 = 0.98
Z = 2.0537
Reorder point = Demand during lead time + Safety stock
= (Lead time in days) (Demand per day) + Z(Standard deviation) (Lead time in days)0.5
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