How much Safety Stock: As long as the demand does not cross average levels, product availability is not difficult to achieve. In calculating excess inventory to keep (safety stock) the manager is only concerned with those occasions when demand goes above average. Demand will be below average approximately 50% of the times, and thus a 50% service level can be maintained without safety stock. It is on those occasions when demand exceeds the average that safety stock (excess inventory) is required. As is evident from the basic graph for normal distribution, by setting a stock level at s 1 greater than mean, a service level of approximately 84% can be achieved, followed by 98% service level with safety stock at 2 standard deviations above average. Finally, an additional standard deviation worth of safety stock will give you a service level of 99.9% (an addition of 1.9% service level).

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As you see above, as the desired service level rises, it takes a disproportionate investment in inventory to achieve small incremental improvements in availability.

Based on the above, if a business has an average sales of 50 units a day with a possible deviation of 3 units, how many units are needed at any point in time to keep the service level at 98%?

Group of answer choices

a. 50

b. 53

c. 6

d. 56


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