Suppose that an auto part in a manufacturer's inventory has the following characteristics:

a Design a reorder point control system for this part, given the assigned P. How would you state the inventory control policy if the ROP > Q*?
b. Design a periodic review system for this part. Now assume that the probability of being in stock extends to the order interval plus lead time.
c. Determine and compare the relevant costs of each approach.
d. What service level (fill rate) do you actually achieve with both designs?
e. Find the in-stock probability during the lead time that will optimize a reorder point system design. How does the total cost compare with that in part a?

Transcribed Image Text:

1,250 cases per week Forecast of demand Forecast error, std. dev. 5 cases per week Lead time Carrying cost Purchase price, delivered 56 per case Replenishment order cost $40 per order Stockout cost Probability of being in stock during the lead time, P 80% 2.5 weeks 30% per year = $10 per case