Southside restaurant uses a fixed quantity (continuous replenishment) system. Daily demand for bags of coffee is normally distributed with a mean of 36 and standard deviation of 8. The lead time is constant at 5 days. The management wants to have a 92 percent service level and the restaurant is open 365 days per year. Holding costs are $0.50 per year and the ordering costs are $2.5 per order.
a. Determine the order quantity at which the total inventory costs would be minimized?
b. What is the reorder point and the time between orders?
c. Illustrate the order quantity, re-order point, safety stock and lead time on a diagram where the Y-axis represents the number of coffee bags and the x-axis represents the time? What is the maximum possible inventory in the system at any point of time?
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