As a manager at Trader Joe’s in Bloomington, you learn that the store often realizes stockouts for Breakfast Blend Coffee. You suspect there might be a problem with inventory management, thus you decide to gather more data. The demand for Breakfast Blend Coffee turns out to be normally distributed. The mean demand for one week is 120 packages and the standard deviation is 20 packages. Trader Joe’s cost for Breakfast Blend coffee is $3.50 per package. The cost of carrying Breakfast Blend coffee in inventory is $0.50 per package per week. In addition, Trader Joe’s incurs a cost of $27 for placing an order and it takes 1 week to receive the delivery.
a. How many packages of coffee should Trader Joe’s order at a time (assume continuous review policy and Economic Order Quantity)?
b. What should be the reorder point if Trader Joe’s wants to provide a 95% service level? Table of z-values Probability z-value Probability z-value
Table of z values
1) Probability 2)z-value 0.99 2.326 0.89 1.227
0.98 2.054 0.88 1.175
0.97 1.881 0.87 1.126
0.96 1.751 0.86 1.080
0.95 1.645 0.85 1.036
0.94 1.555 0.84 0.994
0.93 1.476 0.83 0.954
0.92 1.405 0.82 0.915
0.91 1.341 0.81 0.878
0.90 1.282 0.80 0.842