A consumer electronics retailer purchases digital cameras from a distributor for $50 each, in addition to an administrative and logistics cost of $100 per order. Demand for the product is assumed constant over time, with a demand rate of 500 units per year. The annualized cost to store a unit of inventory is computed as $40 / year-unit, reflecting that the product is fragile and the opportunity cost of shelf space within the retail store is high. What is the economic order quantity (EOQ) for this product?

Suppose that instead of the order quantity recommendation made in the previous question, the retailer decides to set the order quantity at 100 units. How many times would the store order from the distributor each year under this plan?

What would be the annual total cost (i.e., holding and ordering costs) if the order quantity was set at 100 units?

This same retailer would like to further modify their inventory management strategy for digital cameras to account for demand uncertainty and the fact that the distributor's lead-time is 1 week. The retailer estimates that weekly demand can be estimated by a normal distribution with a mean of 10 units/week and a standard deviation of 2 units/week. He would like to use a continuous review policy to control when inventory should be ordered.

What safety stock level do you recommend the retailer set for this policy assuming they want to maintain an in-stock target of 0.9?

This same retailer would like to further modify their inventory management strategy for digital cameras to account for demand uncertainty and the fact that the distributor's lead-time is 1 week. The retailer estimates that weekly demand can be estimated by a normal distribution with a mean of 10 units/week and a standard deviation of 2 units/week. He would like to use a continuous review policy to control when inventory should be ordered.

What safety stock level do you recommend the retailer set for this policy assuming they want to maintain an in-stock target of 0.9?