Achieving Optimal Restocking Level

Explanation:

A machine shop is using a periodic system with a review period of four days and a lead time of two days to maintain the inventory of saw blades. The average daily usage of saw blades is 11 units, with a standard deviation of 9 units over a six-day period. The manager wants to limit the probability of a stockout to 2.5% of the time.

To calculate the restocking level, we need to consider both the average usage and the safety stock required to prevent stockouts. The safety stock is determined by the desired service level, which in this case is 97% (100% - 2.5% = 97%). The corresponding value of z for 97% service level is 1.96.

Using the formula:

Restocking Level = (Average Daily Usage × (Lead Time + Review Period)) + (Standard Deviation × z)

Plugging in the values:

Restocking Level = (11 × (2 + 4)) + (9 × 1.96)

Restocking Level = 147 units

Therefore, the machine shop should maintain a restocking level of 147 units to ensure they have an adequate supply of saw blades while minimizing the risk of stockouts.