In its analysis, Foods Galore determined that demand and lead time are not constant. In fact, demand has a standard deviation of 74 cases per day and lead time has a standard deviation of 1.5 days. Foods Galore management wants to evaluate two service level policies. One policy would incur a 5 percent risk of stock-out while waiting for replenishment, the other only a 1 percent risk of stock-out. What would be the cost of carrying the safety stocks for each of the two policies?

 

Carrying Cost 5 percent risk of stockout 1 percent risk of stockout