Although demand for oil change at a Jiffy Lube store in city of Reading has been fluctuating on a monthly basis, the owner, Scott Lambert, believes that the annual demand has stayed relatively stable at D = 1,260 cases of oil per year. He has estimated that the ordering or setup cost is S = $40, and annual holding cost is H = $3 per case.
a. Assuming that the assumptions of the basic economic order quantity model are met, determine the optimal order quantity for oil?
b. What is the reorder point in part a?
c. After closely watching demand during lead time for oil change, Scott has determined that demand during lead time (d LT) follows a normal distribution with a mean of µ = 30 cases and a standard deviation of σ LT = 6 cases. Concerned about the increased competition in the area and the ability to meet customer demand for oil change, the manager wants a service level of 95 percent. Determine the safety stock and the reorder point that is appropriate for this service level.
d. What accounts for any differences in reorder points in parts b and c? Explain.