Question 1

Ronald Jenkins is an MIT graduate student that sells MIT memorabilia to finance part of his expenses. One of his items is a model of the MIT Dome, the Dommie. Ronald forecasts to sell about 900 Dommies annually with a forecasted annual RMSE of 230 units. Assume 365 days a year.

Ronald 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%. Ronald wants to maintain a cycle service level of 95% on the Dommie.

Ronald 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?

- Ordering cost?

- Cycle stock cost?

- Safety stock cost?

Question 3

Ronald 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)?