MGT 3501 Lecture Notes - Lecture 12: Standard Deviation, Stockout, Lead Time
Document Summary
Want to have safety stock, not have too much excess inventory, but have enough. Develop a forecast to get an estimated demand, and estimated variation ( ) Help calculate what level of safety stock we should have. Service level = stock rate in example: 95% = want 95% of customers to walk away with a car. A lot higher than the standard point with no safety stock. When inventory hits 168 cars, we have a 95% chance of not having a stock out over the 10 day lead time. Optimal order quantity always stays the safe. Refers to the amount of inventory carried in addition to expected demand. Can be based on many different criteria. Common approach is to simply keep a certain number of lead times of supply. If inventory at beginning of month is 100 cars, there is a 50% chance of a stockout. Not a lot of companies use this because the risk is too high.
