A manufacturing firm uses a one-week periodic review system. The firm allows at most two stock-outs per
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A manufacturing firm uses a one-week periodic review system. The firm allows at most two stock-outs per year. The lead time to replenish the stock is three days. The demand during the review period plus the lead time is 50 units with a standard deviation of 12 units. During one review, the reviewer noticed no units in stock. Assume normally distributed demand.
a. What is the probability of service level associated with the firm’s policy on stock-outs?
b. What is the optimal order size for the given information? LO.1
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