As the head of a tire shop it is your responsibility to minimize the cost of inventory for thes hop. You decide to focus on one brand of costly tire that costs you $90 per unit. To maintain the tire in the shop, you incur a cost of 25% of the tire price per year. By examining the past store data, you find that the store sold 1,200 units of this tire last year. The tire supplier takes 4 days to send the shipment to you once you have placed an order with him. Usually the store is open 365 days a year.. you have figured out that placing a single order costs you $110. Use the data given to answer questions below.
1. Suppose that things have become uncertain and the customer demand is no longer constant. Customer demand is now normally distributed with a standard deviation of 0.5 units per day. Supply source is very reliable and the lead time is same as before. Find out the a) safety stock @ 90 % and b) inventory carrying cost at 90% customer service level.
2. Suppose the supplier offers you a discount if you buy more than 120 units in a single order. If you buy more than 120 units you pay $65 per unit would you take the offer? Why not?