A store has collected the following information on one of its products:

Average weekly demand = 30 units/week

Standard deviation of weekly demand = 10 units

Cycle-service level = 99%

Lead time = 4 weeks

Order placement cost=$25 per order

Unit price=$5

Annual holding cost fraction= .3 $/$/yr.

6 marks

a) The firm uses continuous review system (i.e., Q system) to replenish the products inventory with a fixed order size of 200 units. Determine the reorder point for this Q system.

6 marks

b) Suppose the supplier makes the following offer: if the company buys in lots of 300, she will reduce lead time from 4 weeks to 1 week? Will you accept the suppliers offer?