Answer to Question #344883 in Statistics and Probability for Akshay

Question

If in the above example, the manager of Universal autos wants the probability of the stockout to be no more than 4%, then what should the reorder point be? Assuming that it has been determined that the demand during replenishment lead-time is normally distributed with a mean of 15 gallons and a standard deviation of 6 gallons.

Answer 1

$P(X<x)=P(Z<\dfrac{x-15}{6})=0.04$

$\dfrac{x-15}{6}=-1.750686$

$x=15-6(1.750686)$

$x=4.496$