Q.1.The General Tyre and Rubber Company of Pakistan Limited (GTR) produces and sells an excellent quality Tyre. After production, the Tyres are distributed to 70 warehouses around the country. Each warehouse services approximately 2000 stores in its region. General Tyre and Rubber Company uses an EOQ model to determine the number of Tyres to order for each warehouse from the factory. Annual demand for Warehouse P4 is approximately 430,000 Tyres. The ordering cost is Rs.450 per order. The annual carrying cost of a pair of Tyres is Rs. 3500 per Tyre.

1. Use the EOQ model to determine the optimal number of tyres per order.

2. Assume each month consist of approximately 4 weeks. If it takes 1 week to receive an order, at what point should warehouse P4 reorder shoes?

3. Although P4's average weekly demand is 4000 pairs of shoes (300,000 12 months 4 weeks), demand each week may vary with the following probability distribution:

Total demand for 1 week

4,000 Tyre

3,500 Tyre

5,000 Tyre

4,250 Tyre

5,000 Tyre

Probability (sums to 1.00)

0.05

0.30

0.52

0.20

0.52

If a store wants tyre and P4 has none in stock, P4 can "rush" them to the store at an additional cost of Rs.500 per tyre. How much safety stock should Warehouse P4 hold? How will this affect the reorder point and reorder quantity?