Question: Monthly demand for an inventory item is normally distributed with a mean of 30 units and a standard deviation of 6. The demand follows this
Monthly demand for an inventory item is normally distributed with a mean of 30 units and a standard deviation of 6. The demand follows this distribution every month, 12 months a year. When inventory reaches a predetermined level, an order for replenishment is placed. The fixed ordering cost is $100 per order. The items cost $5 per unit and the annual inventory holding cost is 25 percent of the average value of the inventory. The replenishment lead time is exactly 3 months. Determine the reorder point and safety stock to achieve a 95 percent service level. (Recall that the reorder point = Demand During Lead Time + Safety Stock. Also, remember that the standard deviation of demand during lead time is l if the lead time is longer than 1 month.) When solving the problem can you please explain how to calculate the Z- value?
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