A small airport is considering whether it should provide jet fuel to airlines if required. To understand the possible demand, the airport surveyed its potential customers and compiled the following data:

Weekly average jet fuel demand () 80 tons

Weekly jet fuel demand standard deviation ( t ) 20 tons

Weekly holding cost $130/ton

Order cost $15,500/order

Lead time 3 weeks

Working weeks per year 52 weeks

The airport is interested to know what size of fuel holding tank to build, and so would like to know the best inventory strategy.

(a) What is the expected jet fuel yearly average demand D?

(b) Given D, find the order lot size Q that gives the economic order quantity

(EOQ).

(c) Given the EOQ, what is the total inventory holding cost?

(d) Given the EOQ, what is the total inventory ordering cost?

(e) Given the EOQ, what is the total annual inventory cost?

(f) What is the time between orders in weeks?

The airport is convinced that placing an order every season (every P = 13weeks) will be best. It is also aware that the expected demand will vary with a standard deviation of 20 tons, so it needs to take this information into account.

(g) What is the protection period required by the proposed 13-week periodic

review system?

(h) The airport is required by the airlines to maintain a 99.75% service level. What is the required safety stock?

(i) Calculate the order size (Q) when using P = 13.

(j) What is the target inventory level (T)? The airport has shopped for fuel holding tanks and has found a 1000, 1500, 2000, and 2500 ton tanks. Which would you recommend?

(k) List one advantage of using the order interval calculated in (f) over P =13. What is one disadvantage?