Safety Stock Using Probability

Objective: Calculate safety stock using probability

Data:

$$ Demand per week $=1,000$ units

$$ Lead time $=2$ weeks

$$ Carrying cost$/$unit $=$ US$$30$

$$ Cost of stock out$/$unit $=$ US$$100$

$$ Optimum number of replenishment orders per year $=26$

$$ Current reorder point $=2,000$ units

$$ Demand above $2,000$ units during reorder point period:

Number of units

Probability

$2,000-24\%$

$2,100-15\%$

$2,200-8\%$

$2,300-2\%$

$2,400-1\%$