Managing Supply Chain and Operations 1st Edition by Thomas Foster ,Scott Sampson,Cynthia Wallin,Scott Webb

Exercise 18

Dayton Electronics demands a part at a daily rate of 40 units. The lead time for replenishment is four days for this item. The standard deviation of demand during the lead time is 8. Dayton Electronics prides itself on having a high level of customer service and strives to achieve a service level of 99%. How much safety stock should Dayton Electronics hold for this item? What will be the annualized cost of this safety stock if the opportunity cost of capital for Dayton Electronics is 15% and the item costs $125?