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Managers have noted that stockouts occur 3 0 percent of the time with this policy, and they question whether a change in inventory policy, to
Managers have noted that stockouts occur percent of the time with
this policy, and they question whether a change in inventory policy, to
include some safety stock, might be an improvement. The managers
realize that any safety stock would increase the service level, but they
are worried about the increased costs of carrying the safety stock.
Currently, stockouts are valued at $ per unit per occurrence, while
inventory carrying costs are $ per unit per year.
A What is the sum of additional holding cost and stockout cost when
ROP is ie in case of zero safety stock
B What is the sum of additional holding cost and stockout cost when
ROP is ie in case of units of safety stock
C What level of safety stock is best?
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