Daily demand for aspirin at DoorRed Pharmacy is normally distributed, with a mean of 40 bottles and a standard deviation of 5. The replenishment lead time from the supplier is one day. The current inventory policy at DoorRed is to order 200 bottles when the quantity on hand drops below 45. Each bottle costs DoorRed $4, and the pharmacy uses an annual holding cost of 25 percent.

c. DoorRed believes that all unfilled demand can be backlogged if customers are given a $1.50 discount on their next purchase (effectively making the cost of understocking $1.50). What inventory policy do you recommend for DoorRed?

Inputs \begin{tabular}{|l|} \hline Expected demand per day, D \\ Standard deviation of demand, D \\ Order quantity, Q \\ Reorder point, ROP \\ Replenishment lead time in days, L \\ Cost of understocking, CU \\ Unit costs, C \\ Inventory holding costs, h (enter as \%) \\ \hline \end{tabular} Distribution of demand during lead time \begin{tabular}{|l|l|} \hline Mean demand during lead time, DL & \\ SD of demand during lead time, L & \\ \hline \end{tabular}