Safety Stock & Reorder Points Flashcards

A company experiences average daily demand of 50 units with a lead time of 8 days. What is the basic reorder point (without safety stock)?

Answer: 400 units

Basic ROP = Average daily demand × Lead time = 50 × 8 = 400 units.

Which statistical measure is used to quantify demand variability when calculating safety stock using the standard deviation method?

Answer: Standard deviation of demand

Safety stock calculations using the statistical method rely on the standard deviation of demand to measure variability.

A service level of 95% corresponds to a z-score of approximately 1.65. If lead time demand standard deviation is 30 units, what is the safety stock?

Answer: 49.5 units

Safety stock = z × σLTD = 1.65 × 30 = 49.5 units.

What happens to the reorder point when supplier lead time increases, assuming all other variables remain constant?

Answer: Reorder point increases

A longer lead time means more inventory is consumed before replenishment arrives, raising the reorder point.

Which approach to setting safety stock is most appropriate when demand data is limited or highly irregular?

Answer: Judgment-based or percentage-of-lead-time-demand method

When data is sparse or irregular, judgment-based or simple percentage methods provide practical safety stock estimates.

A distributor sets a reorder point of 200 units. If average lead time demand is 160 units, what is the implied safety stock?

Answer: 40 units

Safety stock = ROP − Average lead time demand = 200 − 160 = 40 units.

How does increasing the desired service level affect safety stock requirements?

Answer: Safety stock increases because a higher z-score is required

Higher service levels require larger z-scores, which directly increase the safety stock calculation.