A large electronics superstore sells a popular handheld computer. The store presently manages its inventory of this item with the following process: When the number of computers in stock drops to 20, it places an order for 35 to the manufacturer. (20 is called the reorder point and 35 50 is called the order size.) The amount of time to receive an order varies a bit, but can be approximated by a normal distribution with a mean of 5 days and a standard deviation of .3 days. An examination of sales records (at times when there are computers in stock) shows that the time between purchases of a computer is 2 hours on average (with an exponential distribution). The store is open 10 hours per day, 7 days per week. The store estimates that during the next 2 months this demand pattern should remain steady. Management wants to satisfy at least 90% of the customer demand directly from the stores inventory. Subject to this, of course, management wants to minimize its costs. In this case, the costs are $100 every time an order is placed (regardless of its size) and $.50 per day for every computer that is in inventory at the store. Management wants to determine whether it should change its reorder point and order size.

Order Size Reorder Point 35 25 45 25 55 25 65 25 75 25

For each scenario in the previous table, run 30 simulations and report the overall mean service level and the estimated total cost. Does this new reorder point achieve the desired service level of .9? If so, which scenario would you recommend? As the order size increases, what happens to the ordering and holding costs?