Weekly demand for DVD- Rs at a retailer is normally distributed with a mean of 1,000 boxes and a standard deviation of 150. Currently, the store places paper orders faxed to the supplier. Assume 50 working weeks in a year and the following data:
• Leadtime for replenishment of an order is 4 weeks.
• Fixed cost (ordering and transportation) per order is $ 100.
• Each box of DVD- Rs costs $ 9.99.
• Annual holding cost is 25% of average inventory value.
• The retailer currently orders 20,000 DVD- Rs when stock on hand reaches 4,200.
a. Currently, how long, on average, does a box of DVD- Rs spend in the store? What is the annual ordering and holding cost under such a policy?
b. Assuming that the retailer wants the probability of stocking out in a cycle to be no more than 5%, recommend an optimal inventory policy ( a policy regarding order quantity and safety stock). Under your recommended policy, how long, on average, would a box of DVD- Rs spend in the store?
c. Claiming that it will lower lead time to 1 week, the supplier is trying to persuade the retailer to adopt an electronic procurement system. In terms of costs and flow times, what benefits can the retailer expect to realize by adopting the electronic procurement system?