Product: Oil, delivery lead time LT = 1 Day

Demand / day ∼ N(µ = 2000, σ = 500) in gallons.

Part (a): Suppose we use continuous-review system and do not

want stock-outs (shortages) to occur in more than 1 out of 10
cycles.

What is the Service Level (SL)? Service level : not more than 1 out of 10 = 9/10 = 90%
z= 1.29

What is the reorder point (ROP)? ROP = 2000*1.29*500 = 2645 gallons

Product: Oil, delivery lead time LT = 1 Day
Demand / day ∼ N(µ = 2000, σ = 500) in gallons.

Part (b): Suppose we switch to the periodic review system and

order sufficient quantity to fill 10,750-gallon tank.

(i) What is the target inventory position?

Maximum filling position is the target inventory position = 10,750 gallons

(ii) If we order every 4 days (P = 4), how much is the service level?

mean = 1+4*2000 = 10,000, SD = 500*root 5 = 1118

SL = (10750-10000)/1118 = 0.67 =Z
SL = 74.86%