Charlie\'s Pizza orders all of its pepperoni, olives, anchovies, and mozzarella
ID: 358785 • Letter: C
Question
Charlie's Pizza orders all of its pepperoni, olives, anchovies, and mozzarella cheese to be shipped directly from Italy. An American distributor stops by every six weeks to take orders. Because the orders are shipped directly from Italy, they take five weeks to arrive. Charlie's Pizza uses an average of 160 pounds of pepperoni each week, with a standard deviation of 26 pounds. Charlie's prides itself on offering only the best-quality ingredients and a high level of service, so it wants to ensure a 99 percent probability of not stocking out on pepperoni. Assume that the sales representative just walked in the door and there are currently 500 pounds of pepperoni in the walk-in cooler. How many pounds of pepperoni would you order? (Use Excel's NORMSINV() function to find the correct critical value for the given -level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)
Explanation / Answer
Order interval, P = 6 weeks
Lead time, L = 5 weeks
Average weekly demand, d = 160
Std deviation of weekly demand, s = 26
Service level = 0.99
Z value = NORMSINV(0.99) = 2.33
Target inventory level , T = d*(L+P) + z*s*(L+P)
=160*(6+5) + 2.33*26*(6+5)
= 1961
Pounds of pepperoni to order = T - I = 1961 - 500 = 1461 lbs.