A company is studying the inventory stocking policy for a product (#A123). The company uses a fixed-order quantity system to manage inventory. Demand per day is normally distributed with a demand per day of 210 and a standard deviation of 5 per day. Based on historical lead time of 4 days the current reorder point is set at 860 units.

The company has some new information about the supplier. Because of a natural disaster in the supplying country, the lead time has increased to 9 days.

A company is selling coffee mugs. Weekly demand for the mug is normally distributed with a mean of 5000 and a standard deviation of 1000. The replenishment lead time is 16 weeks.

2. What will be safety inventory for a service level of 95%? (2 points)
4. What tactic must the company pursue to reduce its safety inventory costs: (a) a negotiation with the supplier to reduce the lead time to 9 weeks, or (b) a negotiation with the its customer to suitably place its orders so that standard deviation of demand reduces to 600?

ABC Convenient stores uses fixed-time period model to determine order quantity for their popular chewing gum (Supergum). Daily demand for Supergum is 100 units with a standard deviation of 20 units. The review period is 10 days and lead time is 6 days. At the beginning of this review period there are 1800 units in stock.

 

If 98% service probability is desired, how many units should be ordered?