SAFETY STOCK WITH PROBABILISTIC DEMAND Memphis Regional Hospital stocks a “code blue” resuscitation kit that has a normally distributeddemand during the reorder period. The mean (average) demand during the reorder period is 350 kits,and the standard deviation is 10 kits. The hospital administrator wants to follow a policy that results instockouts only 5% of the time.(a) What is the appropriate value of Z ? (b) How much safety stock should the hospital maintain?(c) What reorder point should be used?APPROACH c The hospital determines how much inventory is needed to meet the demand 95% of thetime. The figure in this example may help you visualize the approach. The data are as follows:m = Mean demand = 350 kitssdLT = Standard deviation of demand during lead time = 10 kitsZ = Number of standard normal deviations
SAFETY STOCK WITH PROBABILISTIC DEMAND
Memphis Regional Hospital stocks a “code blue” resuscitation kit that has a normally distributed
demand during the reorder period. The mean (average) demand during the reorder period is 350 kits,
and the standard deviation is 10 kits. The hospital administrator wants to follow a policy that results in
stockouts only 5% of the time.
(a) What is the appropriate value of Z ? (b) How much safety stock should the hospital maintain?
(c) What reorder point should be used?
APPROACH c The hospital determines how much inventory is needed to meet the demand 95% of the
time. The figure in this example may help you visualize the approach. The data are as follows:
m = Mean demand = 350 kits
sdLT = Standard deviation of demand during lead time = 10 kits
Z = Number of standard normal deviations
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