Demand for walnut fudge ice cream at the Sweet Cream Dairy can be approximated by a Normal distribution with a mean of 7 gallons per day and a standard deviation of 0.7 gallons per day. The new manager desires a service level of 90 percent. Lead time is two days, and the dairy is open seven days a week. Answer the following questions assuming the dairy is operated using a continuous review policy first and then a periodic review policy.
(a) Under a continuous review policy, what reorder point would be consistent with the desired service level?
(b) What is the dairy manager’s optimum order quantity?
(c) How many days of supply are on hand on average?
PERIODIC REVIEW POLICY:
(d) If a periodic review policy is used instead of a continuous review system and inventory is reviewed every 3 days, what is the base stock level?
(e) What is the order size that would be needed under the periodic system if the store currently holds 15 gallons in inventory?
(f) What is the order size in part (e) if the store holds 20 gallons in inventory?