A small coffee shop consumes on average 5000 bags of their most popular coffee beans each month. Demand is normally distributed with standard deviation of the monthly demand being 200 bags. The shop pays $12 for each bag to the supplier. The cost of ordering and receiving shipments is $15 per order. Accounting estimates annual inventory carrying cost is 30% of its value. The supplier lead time is a constant of 2 operating days. The shop operates 240 days per year, i.e., the shop operates 20 days each month. Each order is received from the supplier in a single delivery. The coffee shop uses continuous review (i.e., fixed-order quantity) inventory system and pays the supplier when the order is delivered (i.e., cash on delivery). There are no quantity discounts.

MONTHLY DEMAND=5000 STANDARD DEV=200 ANN-3.6

ANNUAL DEMAND =60000. PER UNIT COST= 12 ORDER COST=15

(NOT SURE IF WHAT I DID WAS RIGHT FOR QUESTION ONE PLEASE REWORK IT AND SHOW ME IF I DID IT THE WRONG WAY IF IT IS RIGHT LET ME KNOW IF I SHOWS HOW I DID IT RIGHT)

1.What is the standard deviation of demand during the lead time period?

SOLUTION- SQRT(LEAD TIME IN MONTHS)X(STANDARD DEV OF MONTH DEMAND)

SQRT(0.1)X2000= 63.25

ANSWER-63.25

2.The coffee shop manager worries that the safety stock of 50 bags is too low and asks you for advice. What is the safety stock if the coffee shop maintains a service level of 95%?

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