Assignment 1. A Walmart supplier’s demand forecasting team estimates that the demand for jeans is on average 600 pairs per month with a standard deviation of 255 pairs. They assume that the demand is distributed normally and that jeans form a single demand SKU for Walmart. Walmart demands a 99% service level. Based on historical data, the supplier estimates that the average lead time is 2 weeks. There is a fixed cost of production of $145 irrespective of the order size. Each pair has a variable cost of $5 and monthly cost of capital at a 1.5% rate and handling costs amounting to $1 per pair per month. Assume 4 weeks per month.
1. What is the optimal reorder point and order size?
2. How much safety stock, on average, would the supplier hold?
3. How much cycle stock, on average, would the supplier hold?