# Safety Stock and Reorder Point

Safety Stock and Reorder Point

Consider the following data.

 Inventory Item Average Demand (Annual) Sigma (Std. Dev.) of Demand During Lead Time Item Unit Cost F-11001 15,000 100 \$250.00 K-12002 100,000 300 \$2.00 L-13003 250,000 200 \$0.20 N-14004 300,000 400 \$1.00 P-21001 50,000 60 \$125.00 S-22002 80,000 75 \$30.00

Note: All items are independent demand items.

Based on the above data:

• Calculate the safety stock quantities and the inventory cost associated with safety stock (based on the item unit cost) for the inventory items at four different service levels (50%, 80%, 90%, and 95%).
• Develop a table to present the inventory quantities and the safety stock costs at each service level.
• Assuming that demand occurs at a steady pace every month (in other words, there is no seasonality or cyclical change in the level of demand), calculate the reorder point for each item assuming a lead time of two months and a service level of 90%.
• Develop a table to present the reorder points for all products under these conditions (two month lead time and service level of 90%).