BUISENESS MANAGEMENT
INVENTORY MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Deviation of demand during lead time assumed to be normally distributed
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Using Mean Absolute Deviation (MAD) is more accurate than Standard Deviation
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It is suggested to achieve 100% of service level to increase higher profitability
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There is only one variability exists in the formula
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Detailed explanation-1: -The standard deviation of demand during lead time is standard deviation of the demand per week multiplied by square root of the lead time. Quite straight forward. Because service level is 90 percent or risk is 10 percent, Z value is 1.28.
Detailed explanation-2: -To calculate your safety stock this way, use the formula: safety stock = Z * LT * D avg. In this equation, Z is the number of orders your brand expects to fulfill within a given time period (also known as your service level or service factor). Next, LT is the standard deviation of lead time.
Detailed explanation-3: -Safety stock is designed to prevent stock-outs when there is variability in your demand and supply. Changes in your mean lead time and demand affect your cycle stock but not your safety stock. By reducing the variability, you reduce your safety stock.