EOQ, uncertainty, safety stock, reorder point. Chadwick Shoe Co. produces and sells an excellent

quality walking shoe. After production, the shoes are distributed to 20 warehouses around the country. Each

warehouse services approximately 100 stores in its region. Chadwick uses an EOQ model to determine the

number of pairs of shoes to order for each warehouse from the factory. Annual demand for Warehouse OR2

is approximately 120,000 pairs of shoes. The ordering cost is $250 per order. The annual carrying cost of a

pair of shoes is $2.40 per pair.

Required 1. Use the EOQ model to determine the optimal number of pairs of shoes per order.

2. Assume each month consists of approximately 4 weeks. If it takes 1 week to receive an order, at what

point should warehouse OR2 reorder shoes?

3. Although OR2's average weekly demand is 2,500 pairs of shoes (120,000 12 months 4 weeks),

demand each week may vary with the following probability distribution:

, ,

If a store wants shoes and OR2 has none in stock, OR2 can "rush" them to the store at an additional

cost of $2 per pair. How much safety stock should Warehouse OR2 hold? How will this affect the

reorder point and reorder quantity?