Linda Lechner has just been severely chastised for her inventory policy. (See Problem 6-37.) Sue Surrowski, her boss, believes that the service level should be either 95% or 98%. Compute the safety stock levels for a 95% and a 98% service level. Linda knows that the carrying cost of BX-5 is 50 cents per unit per year. Compute the carrying cost that is associated with a 90%, a 95%, and a 98% service level.

Problem 6-37

Linda Lechner is in charge of maintaining hospital supplies at General Hospital. During the past year, the mean lead time demand for bandage BX-5 was 60. Furthermore, the standard deviation for BX-5 was 7. Linda would like to maintain a 90% service level. What safety stock level do you recommend for BX-5?

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