Question 1

Antonio Butler sells memorabilia to finance part of his expenses. One of his items is a model of the MIT Dome, the Dommie. Antonio forecasts to sell about 410 Dommies annually with a forecasted annual RMSE of 100 units. Assume 365 days a year.

Antonio pays $250 per Dommie and sells them for $975. Shipping costs for an order of Dommies is $50 for orders between 1 and 100 Dommies and $75 for larger orders. The order lead time is 5 days from the vendor and the annual holding rate is 10%. Antonio wants to maintain a cycle service level of 95% on the Dommie.

Antonio orders items on a periodic basis and has placed the Dommie in his 4 week (28 day) review policy.

What is his order-up-to-point S for an (R,S) policy?

Question 2 What are his expected annual ordering, cycle stock, and safety stock costs?

2a Ordering cost:

2b Cycle stock cost:

2c Safety stock cost:

Question 3

Antonio would like to develop a (s, Q) policy and see how it compares with his current (R, S) policy (from Question 1).

What should the reorder point (s) be?

What should the order quantity (Q) be?

What would be the total relevant cost associated to this policy (include ordering cost + cycle stock cost + safety stock cost)?