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A specific product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approximately) provides a 95% service level? A) 41 B) 55 C) 133 D) 140 E) 165

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Answer: A. 41 units

Explanation:

Safety Stock refers to inventory that a company holds in case certain factors cause them to run out of goods to sell.

It is calculated by the following formula;

Safety Stock = Lead time factor * Service factor * Standard Deviation

The desired service factor for a 95% service level as shown in the attached table is, 1.64.

Assume a 1 month lead time factor.

Safety Stock = 1 * 1.64 * 25

= 41 units

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abiolataiwo2015

The safety stock (approximately) that provides a 95% service level is A) 41.

Using this formula

Safety Stock = Lead time × Service factor × Standard Deviation

Where:

Lead time=1 month

Service factor=95%= 1.64

Standard Deviation=25 units

Let plug in the formula

Safety Stock=1×1.64×25

Safety Stock=41 units

Inconclusion the safety stock (approximately) that provides a 95% service level is A) 41.

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