Safety Stock and Reorder Point

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Safety Stock and Reorder Point
Consider the following data.
Inventory Item Average Demand (Annual) Sigma (Std. Dev.) of Demand During Lead Time Item Unit Cost
F-11001 15,000 100 $250.00
K-12002 100,000 300 $2.00
L-13003 250,000 200 $0.20
N-14004 300,000 400 $1.00
P-21001 50,000 60 $125.00
S-22002 80,000 75 $30.00
Note: All items are independent demand items.
Based on the above data:
• Calculate the safety stock quantities and the inventory cost associated with safety stock (based on the item unit cost) for the inventory items at four different service levels (50%, 80%, 90%, and 95%).
• Develop a table to present the inventory quantities and the safety stock costs at each service level.
• Assuming that demand occurs at a steady pace every month (in other words, there is no seasonality or cyclical change in the level of demand), calculate the reorder point for each item assuming a lead time of two months and a service level of 90%.
• Develop a table to present the reorder points for all products under these conditions (two month lead time and service level of 90%).

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