A company wants to inventory control a component that it buys from a subcontractor. The cost for the component is SEK 35 / pc. The demand for the component is normally 220 a week (assume 5 working days per week) and the delivery time for the component is 10 working days. The company has stated that they want a security level of 95% (k = 1.65). The standard deviation of the forecast error is 25 pcs / week for the component, and it can be considered that there is no mutual correlation between the weeks. The company expects an internal stock interest rate of 25% per year. When ordering the component, it takes a standard 1.5 hours of administrative work and the company has a cost for one working hour of SEK 800.

a) Determine the parameters of an order point system for the component. Define all necessary parameters as needed. Assume continuous inspection of the warehouse. (3p)

b) Assume that the order point system calculated in a) has been used for 6 months and the result has been that the safety stock has been used frequently and that there has been a shortage of the component once. Analysis shows that demand has not changed, nor has its distribution. The company is not entirely satisfied with the fact that there has been a shortage and that the safety stock is being used. Reason about whether the company should take some action and if so, which action (s). (2p)

c) Assume that after a while it is discovered that demand is slightly higher than expected but that the spread of demand has decreased. You decide to update your order point system. What can you say about order quantity, security stock and order point, will they increase, decrease, be unchanged or can you not with

security pronounce you? Motivate your answer!