An online store sells a product for which the daily demand is normally distributed with a mean of 120 units and with a standard deviation of 10 units. We assume the source of supply has a constant lead time of 14 days. The cost for placing an order is $75 and the annual holding cost per item is $0.5. There is no stock out cost and we assume that unfilled orders are filled as soon as the orders arrives. Sales operate 365 days/year. The company wants to have a 95% service level of not stocking out during the lead time.

Tables that might be useful for answering the questions (click to open):

Normal Distribution function table Service loss function table

5a. What is the Economic Order Quantity (EOQ)?

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units incorrect

5b. What Safety Stock level does the company need to reach the desired service level?

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units incorrect

5c. What Re-Order Point (ROP) level does the company need to reach the desired service level?

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