Question: Bobbi's Restaurant in Boise, Idaho, is a popular place for weekend brunch. The restaurant serves real maple syrup with french toast and pancakes. Bobbi buys the maple syrup from a company in Maine that requires three weeks for delivery. The syrup costs Bobbi $4 a bottle and may be purchased in any quantity. Fixed costs of ordering amount to about $75 for bookkeeping expenses, and holding costs are based on a 20 percent annual rate. Bobbi estimates that the loss of customer goodwill for not being able to serve the syrup when requested amounts to $25. Based on past experience, the weekly demand for the syrup is normal with mean 12 and variance 16 (in bottles). For the purposes of your calculations, you may assume that there are 52 weeks in a year and that all excess demand is back-ordered.
a. How large an order should Bobbi be placing with her supplier for the maple syrup, and when should those orders be placed?
b. What level of Type I service is being provided by the policy you found in part (a)?
c. What level of Type II service is being provided by the policy you found in part (a)?
d. What policy should Bobbi use if the stock-out cost is replaced with a Type 1 service objective of 95 percent?
e. What policy should Bobbi use if the stock-out cost is replaced with a Type 2 service objective of 95 percent? (You may assume an EOQ lot size.)
f. Suppose that Bobbi's supplier requires a minimum order size of 500 bottles. Find the reorder level that Bobbi should use if she wishes to satisfy 99 percent of her customer demands for the syrup.