A Company Wants to Determine Its Reorder Point (R)

question 48

Multiple Choice

A company wants to determine its reorder point (R) . Demand is variable and the company wants to build a safety stock into R. The company wants to have a service probability coverage of 95 percent. If average daily demand is 8, lead time is 3 days, and the standard deviation of usage during lead time is 2, which of the following is the desired value of R?

• A) About 17.9
• B) About 19.7
• C) About 24.0
• D) About 27.3
• E) About 31.2

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Definitions:

Retailer

A business entity that sells goods or services directly to end consumers.

Intermediaries

Individuals or businesses that act as a middleman in the distribution chain between producers and consumers, such as wholesalers or agents.

Middleman

A generic term for intermediaries in the distribution channel who facilitate transactions between producers and end consumers.

Distribution Chain

A sequence of intermediaries that goods pass through from the manufacturer to the final consumer.