Monthly demand of a highly perishable product is 183 units. The unit cost of this product is $15. This product has a standard deviation of 2 units per day.
There is no information on the current service level for this product. This product is managed using the periodic review model. The orders are placed twice weekly on Mondays and Thursdays with a lead time of one day. The cost of ordering is $20 for each order.
A safety stock representing one day of sales is kept and annual holding cost represents 15% of the product's value.
a) What is the service level is currently offered for this product?
b) What would be the impact (average quantity on hand and total holding cost) of increasing the service level to 99%?
c) Should this article be managed using a reorder point system where quantity ordered would be the EOQ? Justify your answer.