Suppose that the manager of a construction supply house determined from historical recordsthat demand for sand during lead time averages 50 tons. In addition, suppose the managerdetermined that demand during lead time could be described by a normal distribution thathas a mean of 50 tons and a standard deviation of 5 tons. Answer these questions, assumingthat the manager is willing to accept a stockout risk of no more than 3 percent:a. What value of z is appropriate?b. How much safety stock should be held?c. What reorder point should be used?
Continuous Probability Distributions
Probability distributions are of two types, which are continuous probability distributions and discrete probability distributions. A continuous probability distribution contains an infinite number of values. For example, if time is infinite: you could count from 0 to a trillion seconds, billion seconds, so on indefinitely. A discrete probability distribution consists of only a countable set of possible values.
Normal Distribution
Suppose we had to design a bathroom weighing scale, how would we decide what should be the range of the weighing machine? Would we take the highest recorded human weight in history and use that as the upper limit for our weighing scale? This may not be a great idea as the sensitivity of the scale would get reduced if the range is too large. At the same time, if we keep the upper limit too low, it may not be usable for a large percentage of the population!
Suppose that the manager of a construction supply house determined from historical records
that demand for sand during lead time averages 50 tons. In addition, suppose the manager
determined that demand during lead time could be described by a
has a mean of 50 tons and a standard deviation of 5 tons. Answer these questions, assuming
that the manager is willing to accept a stockout risk of no more than 3 percent:
a. What value of z is appropriate?
b. How much safety stock should be held?
c. What reorder point should be used?
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