INVENTORY MODELS: LD, r, s, SL

INVENTORY MODELS
Lead time demand (LD), Reorder point (r), Safety stock (s) and Service Level (SL)

1. Find the mean and standard deviation of the lead time demand in each of these cases:
a. The lead time to replenishment of a stock of CD blanks in a factory that makes CDs
has a mean of 10 days with a variance of 4. Likewise, the consumption of the blanks
to make the CDs happens at a mean rate of 200 units per day with a variance of 9.
b. The consumption of ‘L’ size vests of a particular brand at a large cloth store has a
mean of 15 units a day with a variance of 9. When the store replenishes its stock
from a central warehouse for that brand, the lead time to replenishment is a constant
2 days.
c. Robert Langdon novels at an Airport book store have a constant demand of 8 units
per day. The store owner orders them from a distributor in the city. The
replenishment is found to follow a lead time that is 4 days on average with a
standard deviation of 0.5 days.
2. Ramu, a vegetable seller, experiences a demand of 12 kg per day for potatoes. His lead
time for replenishment is 3 days. He always replenishes his stock with a purchase of
108 kg of potatoes from the wholesale vegetable market. Given this, what should his
reorder point be?
3. Lisa Fernandes has a beauty parlour in the Cox Town, Bangalore. One of the items most
consumed in her parlour is the almond milk fairness cream, of which, two 500 ml cans
are used each day. She orders 30 cans at a time, and an order typically takes 4 days to
arrive. What should her reorder point for the fairness cream be?
4. Tennis balls are sold at a sports store in central Delhi. 8 tennis balls are sold daily. The
store owner always purchases a carton of 160 tennis balls from the supplier. The lead
time to replenishment is 7.5 days, what is the store’s reorder point for tennis balls?
5. Be Fine, a multispeciality hospital in a small town has a central store of its essential
usables. One such item is a particular SKU of X-ray film, which it replenishes from a
distributor located in the neighbouring city, as and when necessary. The film comes in a
carton packing, and each carton contains 12 films. Past data, gathered over the last two
years, reveals that the consumption of film cartons during the lead time for replenishment
has been as follows. Find

LD (cartons) 1 2 3 4 5 6 7 8 9

Frequency 3 6 4 2 3 2 1 0 1

a. the mean lead time demand.

b. the lowest reorder point at which there is some safety stock.
c. the highest reorder point at which there is no safety stock.
d. the probability of a stock out if the reorder point is 6 .

Prof. Ajith Kumar, XLRI, Jamshedpur 1

 INVENTORY MODELS: LD, r, s, SL

e. the probability of no stockout if the reorder point is 1.

f. the service level at a reorder point of 4.
g. the reorder point for a service level of 95%.

6. Greychip Electronics uses PCBs for making LCD TVs. To maintain high quality and
low costs, Greychip has cultivated a set of five different vendors to supply these PCBs.
To keep its relationships alive, Greychip orders from a different vendor every order
cycle. This has meant that the lead time is not a constant but varies with each order. In
recent times, there have been fluctuations in the rate of internal consumption (that is, by
the manufacturing department) for the PCBs as well. As a result of these two sources of
fluctuations (in demand rate, and in the lead time) Greychip’s statisticians have
recognized the following pattern in the lead time demand (LD) for the PCBs based on the
past 36 occassions that a replenishment order was placed –

LD Frequency
1100 1
1121 1
1144 2
1158 2
1174 3
1205 5
1218 6
1232 7
1258 4
1280 2
1302 1
1327 1
1350 1

While Greychip wishes to minimize its total inventory costs, it is also concerned that its
customers are not displeased. Compute,
a. the mean lead time demand.
b. the minimum reorder point such that there are no stock-outs ever.
c. the safety stock for the above reorder point.
d. the reorder point for a 90% service level and the safety stock.

7. Grip Systems, a manufacturer of LED lights acquires lamp holders from suppliers.
Recently, it has managed to eliminate the fluctuations in the lead time for this process,
and has established it as a constant 4 days. The internal consumption per day, however,
continues to fluctuate and has been found to follow a normal distribution with a mean of
400 and a standard deviation of 30 per day. Compute,
a. the order point for a 95% service level, and the safety stock.
b. the order point for a 98% service level, and the safety stock.
c. the service level and safety stock at a reorder point of 1500.

Prof. Ajith Kumar, XLRI, Jamshedpur 2