Question: EOQ, uncertainty, safety stock, reorder point. Chadwick Shoe Co. produces and sells an excellent-quality walking shoe. After production, the shoes are distributed to 20 warehouses around the country. Each warehouse services approximately 100 stores in its region. Chadwick uses an EOQ model to determine the number of pairs of shoes to order for each warehouse from the factory. Annual demand for Warehouse OR2 is approximately 120,000 pairs of shoes. The ordering cost is $250 per order. The annual carrying cost of a pair of shoes is $2.40 per pair.
1. Use the EOQ model to determine the optimal number of pairs of shoes per order.
2. Assume each month consists of approximately 4 weeks. If it takes 1 week to receive an order, at what point should warehouse OR2 reorder shoes?
3. Although OR2's average weekly demand is 2,500 pairs of shoes (120,000 , 12 months , 4 weeks), demand each week may vary with the following probability distribution:
Total demand for 1 week 2,000 pairs 2,250 pairs 2,500 pairs 2,750 pairs 3,000 pairs
Probability (sums to 1.00) 0.04 0.20 0.52 0.20 0.04
If a store wants shoes and OR2 has none in stock, OR2 can "rush" them to the store at an additional cost of $2 per pair. How much safety stock should Warehouse OR2 hold? How will this affect the reorder point and reorder quantity?