A product with an annual demand of 1,000 SKUs has Co = $30 and Ch = $8.
Question:
A product with an annual demand of 1,000 SKUs has Co = $30 and Ch = $8. The demand exhibits some variability such that the lead-time demand follows a normal distribution, with a mean of 25 and a standard deviation of five.
a. What is the recommended order quantity?
b. What is the reorder point and safety stock level if the firm desires at most a two-percent probability of a stockout on any given order cycle?
c. If the manager sets the reorder point at 30, what is the probability of a stockout on any given order cycle? How many times would you expect to stockout during the year if this reorder point was used?
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To answer these questions we need to understand a couple of concepts related to inventory management Economic Order Quantity EOQ and safety stock calc...View the full answer
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