BACKGROUND Betty's Bagel Bakery (BBBinc) Inventory Management Raw Materials. Betty gets deliveries of flour and other staples from Gordon Foods each Friday. She must place orders on Monday each week to assure the Friday delivery, 4 days later. Her Target Service Level is 99%. The z-value associated with a 99% Service level is 2.32. Weekly average demand and other information for a selection of staples is shown in the table below. Betty observes that though demand varies, it is approximately normally distributed. Because she is a regular customer, Gordon Foods waives delivery charges. She pays for goods on delivery. avg weekly week std shelf life minimum #units per delivery SKU Item 510 Unbleached Wheat Flour unit pound Demand dev weeks 77 7.7 30 5 515 Whole Wheat Flour pound 35 5.0 15 5 520 Rye Flour pound 7.5 1.5 30 5 530 Gluten-Free Rice Flour pound 3.0 0.50 50 5 540 Oatmeal pound 3.0 1.5 30 545 Oat Flour pound 2.0 0.50 30 5 550 Corn Meal pound 1.0 0.10 15 5 Paper Supplies. Betty also orders custom paper supplies (cups and take-out bags) with her logo printed on them. Daily demand for take-out bags is normally distributed with a mean of 90 bags and a standard deviation of 30 bags. Betty's printer charges her $30 per setup for each print run independent of order size. Bags are printed in batches of 1000, and priced at $30.00 per thousand. It takes 4 days for an order to be printed and delivered. Betty has a storage room big enough to hold all reasonable quantities of bags; its operating expenses may be regarded as fixed. Betty's opportunity cost of capital is estimated to be 25% per year. Assume 360 days/year. Planning the Daily Bake. Betty is resigned to working 7 days/week, 360 days a year. (She takes holidays on New Year's, MLK day, 4th of July, Thanksgiving, Christmas and her birthday, February 29th.) What bothers her is that daily demand for bagels is variable, and that the long lead time for bagel production means that she has to commit in advance to baking the bagels without knowing precisely how many will be sold. To date she hasn't baked more than 300, but knows that on some days she loses sales due to stocking out before the end of the day. She figures that her gross margin on each bagel she sells (the price of $0.80 less her variable costs of $0.20) is $0.60. Since starting BBBine she has taken any leftovers at the end of the day to St. Andrew's church to be used in the "Free Breakfast for the Homeless" program there. Recently she got an offer from the Lecturer Employees Organization (LEO) to buy her daily leftovers at a price of $0.15 each, to be placed in the Faculty Lounge at the Ross School of Business the next day. Recent daily demand for bagels is shown in the table below. Due to production constraints she'll have to plan per mini-batch increments of 20. Bagels sold Probability