The company is trying to plan the (R,Q) policy for the next year. They estimate that the total demand will be of 1000 units of this SKU. The ordering cost is $85/order and the cost of the good is $200/unit. The inventory cost per unit is 1.5% of the cost of product.

While the economic order quantity is straightforward to compute, the reorder point will be more convoluted. You will have to ascertain the distributions of the demand, the lead time, and the lead time demand. You will calculate the reorder point for three different service levels, namely, 85%, 90%, and 95%, and you will do it in two different ways, as discussed in class:

1. You will estimate the corresponding percentiles of the demand during the lead time by numerical integration. For this, you will have to assess the distributions of the demand and the lead time. Whatever assessments you come up with, they must be done via statistical tests (i.e., this more or less looks normally distributed is not a valid argument).

2. You will make a reasonable assessment of the distribution of the lead time demand (again, this more or less looks normally distributed is not a valid argument) and calculate the corresponding percentiles for the different service levels considered.

Summarize and explain your work in a document (PDF or Word file) and enclose your numerical and statistical work in the appropriate files. You are free to use any tool that you like. If you use Matlab, then send a Matlab script; if you use Python, then send a Python script, etc.