Mobil Films buy a petroleum based raw material that it uses in its production process for films. The production process demand for this raw material can be approximated by a Normal random variable with mean 16000lbs and standard deviation 5000lbs per day. The supplier of the raw material is far away, and it takes 10 days for the supplier to deliver an order. Each time an order is issued to the supplier Mobil Films incur $375 fixed transportation cost and an additional $55 for handling the paperwork. Annual holding cost for each pound of raw material is 12% and each pound of raw material costs $1.12. Assume that the plant works for 320 days a year. Mobil Films use (r,Q) model to manage inventory and issues orders according to the EOQ.
a) What is the order quantity for raw materials in lbs?
b) If Mobil Films would like to be in stock 97% of all reorder periods, what would be the inventory level that Mobil Films should issue an order?
c) Based on your result in part b, what is the level of pipeline inventory: _____________
what is the level of safety stock: _____________
d) What is the total annual cost per year in managing this raw material inventory?