The operations manager at J. Hansen Enterprises, Inc. has a historical sample of demand during the lead time normally distributed. She found that the average daily demand is 70 units, and the standard deviation of daily demand is 20 units. The lead time is constant of 3 days. Answer the following questions based on the above data:

Using the continuous review policy, if the company would like to target a cycle service level of 95%...

Explain what a cycle service level of 95% means.

A cycle service level of 95% indicates that the company can fulfill customer orders from its on-hand inventory without running out. This metric assesses the inventory management system's ability to meet customer demand within a given time frame, such as a day, week, or month. Maintaining a high cycle service level improves customer satisfaction by reducing stockouts and backorders and optimizing inventory levels.

What is the safety stock at a cycle service level of 95%? Show calculations in Excel.

SS = 87.037

What is the reorder point (ROP) to meet a 95% cycle service level? Show calculations in Excel.

ROP = 297.0374728

Run a scenario analysis, show how safety stock changes as the company increases its cycle service level from 95% to 97.5% to 99% and then to 99.5%. Show calculations in Excel. What insights can you draw from this analysis?

The required safety stock grows in proportion to the company's cycle service level. This is because higher service levels necessitate holding more inventory in order to meet customer demand consistently and reduce the risk of stockouts. The increase in safety stock is not directly proportional to the increase in service level. For example, moving from 95% to 97.5% service level necessitates a smaller increase in safety stock than going from 97.5% to 99% service level. Increasing service levels comes at the expense of higher inventory holding costs due to the additional safety stock required. To achieve optimal overall performance, businesses must carefully balance service level targets with inventory management costs.

If the company has decided to have a reorder point at 250 and the order quantity is 1000...

Using the continuous review policy, what is going to be the cycle service level? Show calculations in Excel.

CSL = 0.875893461

Using the continuous review policy, what is going to be the product fill rate? Show calculations in Excel.

FR = 1

Compare your answers from 2a and 2b, explain the difference (given the same reorder point at 250).

Given the same reorder point and order quantity, the difference between CSL and FR indicates that, while the company can meet the majority of demand without stockouts (CSL of 0.876), all demand is met immediately from on-hand inventory without the need for replenishment.

Using a periodic review policy with T=4 days, if the company would like to target a cycle service level of 90%...

What is the safety stock at a cycle service level of 90%? Show calculations in Excel.

SS = 67.81333469

Find the order up to level (OUL). Show calculations in Excel.

OUL = 16569.57

What happens to the safety stock at the cycle service level of 95%? Show calculations in Excel.

SS = 87.0374728

Comparing 3c with 1b, what insights can you draw from this comparison?

When safety stock levels are equal between continuous and periodic review inventory systems, it means that both systems can provide comparable levels of inventory protection against stockouts, ensuring adequate inventory levels to meet customer demand.

Now the lead time is no longer constant. The company is dealing with supply uncertainty (in addition to the demand uncertainty). Suppose the targeted cycle level is 95%.

What is the safety stock if the lead-time has a mean of 3 days and a standard deviation of 1 day? Show calculations in Excel.

Compare 4a with 1b, what insights can you draw from this comparison?

Assume that there is no demand uncertainty, but only supply uncertainty as noted in # 4 above exists. Daily demand is 70 units. The targeted cycle service level is 95%.

What is the safety stock? Show calculations in Excel.

Compare 5a, 4a, and 1b. What insights can you draw from this comparison?