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ecause of coronavirus, demand for Vitamin C tablets increased significantly at CVS. CVS started to observe a weekly demand of 85 boxes of Vitamin C tablets with a standard deviation of 50 boxes. The cost of placing an order is $200, and the time from ordering to receipt is 4 weeks. The procurement cost (wholesale price) of the product is $15. The annual inventory carrying cost is 10% of the procurement cost of the product. What is the reorder point if it wants to achieve a stock out probability of 5%

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ogorwyne

Answer:

505 boxes approximately

Explanation:

The weekly demand is = d = 85 boxes

Standard deviation s = 50

Cost of placing order = $200

Ordering time = lead time L = 4 weeks

Stock out probability = 5% = 1-0.05 = 0.95

The reorder point has this formula:

(D*L)+(Z*s*√L)

To get the value of Z we use this excel function NORMSINV(0.95) = 1.644853672

When we put in values into the formula we have:

(85x4)+(1.644853672x50x2)

= 340 + 164.485

= 504.5

Approximately 505 boxes

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