Benji’s Bar and Restaurant uses 5,000 quart bottles of an imported wine each year. Weekly demand is 100 bottles (closed two weeks per year) with a standard deviation of 30 bottles. The wine costs $3 per bottle and is served only in whole bottles because it loses its bubbles quickly. Benji figures that it costs $10 each time an order is placed, and holding costs are 20 percent of the purchase price. It takes four weeks for an order to arrive.
Benji would like to use an inventory system (Fixed - Order Quantity model) that minimizes inventory cost and will provide a 95 percent service probability.
At what inventory level (reorder point) should he place an order?