Sir, I just binge-watched most of your videos. Thank you very much, I understood every topic on Operations Management you spoke of in your videos and they really helped me a lot.
Marvin Melendez - The standard deviation was given for these problems. If something varies like demand or lead time, then they need to tell you by how much it varies which is standard deviation. If you had the raw data like demand or lead time for several orders, you could calculate the average and standard deviation (In Excel: =average(range of cells or values) and =stdev(range of cells or values). In 12.33, the demand is constant but the lead time varies, that is why they gave you the average lead time and the standard deviation for lead time.
Mouna Bokhetache These videos were produced as part of a course that I teach at BYU Hawaii. The textbook that I use is Principles of Operation Management by Jay Heizer & Barry Render. It is published by Pearson. Inventory and re-order points are covered in Ch. 12. We currently use the 9th edition but any of the older editions would work very well. I think this is one of the better textbooks and is very helpful.
Hi Cary, Thank you so much for your awesome response. Excellent video I have been playing around with the example 12.32 because I have the information for average demand and was also able to calculate Stdev. Lead time is constant. The part I'm still struggling with is why are we using the square root of lead-time to calculate safety stock on example 12.32. it's inflating my safety stock too high. This is what I have: Average Daily Demand 12.0144 Standard Deviation 63.2999455 465.63 Safety Stock Lead Time (fixed days) 20 240.29 ROP 4.472136 Square Root of lead-time Service Level 0.95 1.6449 zscore Safety stock is typically calculated as zscore * standard deviation?
***** Sometimes you will get a very high safety stock because your lead time is long. You need to remember that demand can vary that amount every day of the lead time.
Hello Cary - Working on implementing a kanban system and determining min/max levels with safety stock and ROP. Demand varies, but lead time is constant. Which of these examples, if any, would work best for me? Thanks!
+bbdymond The second example (12.32) would work the best for you. This is where the demand is variable, therefore we use the average demand, and the lead time is constant. The formula is ROP = (Average Daily Demand x Lead Time) + (Z x (Standard Deviation of Demand x Square Root of Lead Time))
Hi Cary, I was wondering do you have any information on calculating "standard deviation" value? On your example 12.33 were did the "standard deviation" come from. Is it from the average demand? Thank you for your video! Extremely helpful. Regards, Marvin
+Marvin Melendez In example 12.33, the standard deviation is from the lead time because lead time varies but the demand is constant. If you have something that varies, you need to calculate the average and the standard deviation to determine how much it varies.
Hi mr Countryman, I am working on a project about safety stocks and your video's are a big help. However, is it possible that you send me the document you are using in your video? I think it has some really useful information which I can use. Floris
+OriginalFvdpRecords I made these videos as part of a course that I teach at BYU Hawaii. I use the textbook Principles of Operations Management by Jay Heizer & Barry Render. It is published by Pearson. Inventory and safety stock is covered in Ch. 12.
Shahid Mahmood The service level is related to a normal distribution and is converted into a Z score. If I want to make sure that my product is available 95% of the possible purchases or in other words, there is only a 5% probability that I will be out of stock, then that is a Z value of 1.65. This means that have standardized deviation of 1.65 above the mean captures 95% of the possible distribution or outcomes. For example if you wanted to lower your service level to 90%, then the Z value would only be 1.28 (one sided normal distribution).
There is an assumption made that the stock out costs are higher than having a little more inventory. If the stock out costs are not very high, then you could reduce your service level and have a greater chance of being out of stock. This would reduce the safety stock and the additional costs. These formulas do calculate exactly how much extra inventory (safety stock) you need based on the parameters or the circumstances given. That is the beauty of using these formulas, you are not just holding more inventory. You holding just enough extra inventory to meet the desired service level and deal with the variations in demand and lead time. Therefore, you are controlling for costs and only ordering enough extra to maintain a reasonable safety stock.
![Megan Thee Stallion - Roc Steady (feat. Flo Milli) [Official Video]](http://i.ytimg.com/vi/HozPPyqW0dY/mqdefault.jpg)
Sir, I just binge-watched most of your videos. Thank you very much, I understood every topic on Operations Management you spoke of in your videos and they really helped me a lot.
Marvin Melendez -
The standard deviation was given for these problems. If something varies like demand or lead time, then they need to tell you by how much it varies which is standard deviation. If you had the raw data like demand or lead time for several orders, you could calculate the average and standard deviation (In Excel: =average(range of cells or values) and =stdev(range of cells or values). In 12.33, the demand is constant but the lead time varies, that is why they gave you the average lead time and the standard deviation for lead time.
+Cary Countryman Can you assist me with inventory issues? monadz1010@gmail.com
Mouna Bokhetache
These videos were produced as part of a course that I teach at BYU Hawaii. The textbook that I use is Principles of Operation Management by Jay Heizer & Barry Render. It is published by Pearson. Inventory and re-order points are covered in Ch. 12. We currently use the 9th edition but any of the older editions would work very well. I think this is one of the better textbooks and is very helpful.
Hi Cary,
Thank you so much for your awesome response. Excellent video I have been playing around with the example 12.32 because I have the information for average demand and was also able to calculate Stdev. Lead time is constant. The part I'm still struggling with is why are we using the square root of lead-time to calculate safety stock on example 12.32. it's inflating my safety stock too high. This is what I have:
Average Daily Demand
12.0144
Standard Deviation
63.2999455
465.63
Safety Stock
Lead Time (fixed days)
20
240.29
ROP
4.472136
Square Root of lead-time
Service Level
0.95
1.6449
zscore
Safety stock is typically calculated as zscore * standard deviation?
***** Sometimes you will get a very high safety stock because your lead time is long. You need to remember that demand can vary that amount every day of the lead time.
Hello Cary - Working on implementing a kanban system and determining min/max levels with safety stock and ROP. Demand varies, but lead time is constant. Which of these examples, if any, would work best for me? Thanks!
+bbdymond The second example (12.32) would work the best for you. This is where the demand is variable, therefore we use the average demand, and the lead time is constant. The formula is ROP = (Average Daily Demand x Lead Time) + (Z x (Standard Deviation of Demand x Square Root of Lead Time))
Hi Cary,
I was wondering do you have any information on calculating "standard deviation" value? On your example 12.33 were did the "standard deviation" come from. Is it from the average demand?
Thank you for your video! Extremely helpful.
Regards,
Marvin
+Marvin Melendez In example 12.33, the standard deviation is from the lead time because lead time varies but the demand is constant. If you have something that varies, you need to calculate the average and the standard deviation to determine how much it varies.
Hi mr Countryman,
I am working on a project about safety stocks and your video's are a big help. However, is it possible that you send me the document you are using in your video? I think it has some really useful information which I can use.
Floris
+OriginalFvdpRecords I made these videos as part of a course that I teach at BYU Hawaii. I use the textbook Principles of Operations Management by Jay Heizer & Barry Render. It is published by Pearson. Inventory and safety stock is covered in Ch. 12.
wht is service level? how we can calculate it?
Shahid Mahmood The service level is related to a normal distribution and is converted into a Z score. If I want to make sure that my product is available 95% of the possible purchases or in other words, there is only a 5% probability that I will be out of stock, then that is a Z value of 1.65. This means that have standardized deviation of 1.65 above the mean captures 95% of the possible distribution or outcomes. For example if you wanted to lower your service level to 90%, then the Z value would only be 1.28 (one sided normal distribution).
█ Not carying about the costs and distributions ♦
There is an assumption made that the stock out costs are higher than having a little more inventory. If the stock out costs are not very high, then you could reduce your service level and have a greater chance of being out of stock. This would reduce the safety stock and the additional costs.
These formulas do calculate exactly how much extra inventory (safety stock) you need based on the parameters or the circumstances given. That is the beauty of using these formulas, you are not just holding more inventory. You holding just enough extra inventory to meet the desired service level and deal with the variations in demand and lead time. Therefore, you are controlling for costs and only ordering enough extra to maintain a reasonable safety stock.