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Using a computerized Inventory Management System, a Paint Supply Store franchise continuously monitors the inventory of all the paint located at each of their 15 stores and their distribution warehouse. The Paint Supply Store franchise sells an average of 74 gallons of Purple Paint every week (for 52 weeks per year, Standard Deviation of the Demand = 8 gallons). They purchase Purple Paint from their supplier at a price of $4.00 per gallon.It takes 2.50 weeks to receive an order from the supplier.Administrative costs for Ordering paint have been estimated to be $35 per order.Holding Costs = 40% of the purchase price per gallon per year.How much Safety Stock should the company hold to have a Service Level of 99.0%?

Sagot :

Answer: 29.4 gallons

Explanation:

The Safety Stock that should be held by the company to have a Service Level of 99.0% will be:

= Z × σ × ✓LT

Z = 2.326

σ = Standard deviation = 8

LT = Lead time = 2.50

Safety stock = = Z × σ × ✓LT

= 2.326 × 8 × ✓2.50

= 2.326 × 8 × 1.58

= 29.4 gallons

The safety stock is 29.4 gallons.

abiolataiwo2015

The amount of  Safety Stock that the company should hold to have a Service Level of 99.0% is 29 gallons of paint.

Using this formula

Safety stock = z×(√L/T)×σ

Where:

d=Average Demand rate per time period=74  gallons per week

σ = Standard Deviation =8  gallons

L = Performance cycle or total lead time =2.5 week

z = 99% target service level =2.326

T = Time increment= 1  week

Let plug in the formula

Safety stock = (2.329)×(√2.5/1)×8

Safety stock=(2.329)×(1.581)×8

Safety stock=29.4

Safety stock = 29 gallons of paint (Approximately)

Inconclusion the amount of  Safety Stock that the company should hold to have a Service Level of 99.0% is 29 gallons of paint.

Learn more here:https://brainly.com/question/15937496

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