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Strawberry is negotiating a contract with one of its component suppliers. Strawberry would like to to have an options contract that allows it to reserve
Strawberry is negotiating a contract with one of its component suppliers. Strawberry would like to to have an options contract that allows it to reserve supply up to a certain quantity by paying a small fee per unit upfront and order the actual amount once accurate demand information is available. The supplier incurs a production cost of $50 per unit of the component and can salvage any unsold component units by selling them to other buyers at a discounted price of $25 per unit. The value of the component for Strawberry (when it is used in the final product sold to the customer) is 200 $ per unit. At the time of negotiation, Strawberry only knows that demand follows a Normal distribution with a mean of 2,000 and a standard deviation of 1,000. What is the optimal service level for the supply chain? A. Not enough information to answer the question. B. 86%. C. 50%. D. 100%, as Strawberry should satisfy all the demand always
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