Com205

A building materials supplier obtains its bagged cement from a single source. The annual demand is normally distributed with the average of 3,000 tonnes and standard dev. of 220 tonnes. The lead-time for a supply is 10 days. Each time an order is placed, an administrative employee spends around one hour reviewing the inventory level, preparing the order, tracking the delivery, and updating records. When the delivery is received, it takes roughly one worker hour to unload, inspect, and store the material. The administrative staff member's wage is $30 per hour and the warehouse employees are paid $16 per worker hour. The delivery charges are included in the purchase price. The company purchases cement at $120 per tonne. The annual cost of capital is 10%. Other annual costs of holding inventory are estimated to be 5% of the purchase cost. How much should the company order at a time? What will be the Reorder Point if the desired service level during the lead time is 98%? [8 Marks]