Falcon Tools is a retailer of battery operated hand held power tools for the consumer market (such as screwdrivers and drills). Let’s consider the replenishment/stocking decision for a popular classic battery operated screwdriver, the Master-Driver. Falcon purchases Master-Driver from a supplier and then sells them to customers. Average monthly demand for Master-Driver is normal with mean and standard deviation of 150 and 50, respectively. The lead-time for Master-Driver is also normally distributed with mean of 1 month and standard deviation of 15 days (Assume 30 days a month). Falcon purchases Master-Driver from the supplier for $30 per unit and uses an annual holding/carrying cost rate of 12%. The fixed cost associated with placing an order of Master-Driver to the supplier is $80. Assuming that Falcon estimates a $100 cost associated with each stockout (independent of the units backordered) and targets a fill rate of 98% for Master-Driver, answer following questions:
What is Falcon’s Economic Order Quantity, Reorder point and the associated Average monthly total cost of the operation? Is this replenishment operation a Pull or a Push system?