The Seldom Seen Ranch in Muckinfut, Texas, is in the process of developing an inventory control system for purchasing hay that will cope with Texas-size uncertainty. Seldom Seen foreman Horace Cints prepared the following information on Seldom Seen’s hay use:
Average demand during lead time = 1,010 bales
Lead time = 1 month
Economic order quantity = 2,550 bales
Forecast interval = 1 month
Mean absolute deviation of forecast error = 42 bales
Desired probability of stocking out = 0.10
a. How much safety stock will be required?
b. What’s the reorder point?
c. What’s the customer service level for this policy?
d. What decision rule should Horace Cints use in ordering hay, assuming constant hay usage throughout the year?