Winner Company stocks interior pre-hung doors purchased from a vendor from China. A

typical door is purchased for $44.50 and sells for $58. It is estimated that the cost of order

processing and delivery is $100 per order. The company uses an inventory carrying charge

based on a 26% annual interest rate.

Assume that if a door is demanded when

stockout

, then the demand is backordered, and

the cost assessed for each backordered demand is $15. Suppose the supplier lead time for

the doors is 6 weeks and that weekly demand (assuming 52 weeks per year) is normally

distributed with mean 50 and standard deviation 15.

a.

What is the optimal (Q, R) policy?

b.

What is the optimal service level?

Recall Co and Cu in newsvendor model, optimal service level = critical ratio = Cu/(

Co+Cu

)

a.

How

much safety stock, on average, of doors would the company hold?

b.

How much cycle stock, on average, of doors would the company hold?