A retailer sells handmade teak folding deck chairs at an average rate of 2 per week. The lead time from the craftsman is 8 weeks.
A. What is the average demand during the replenishment lead time? If we set the base stock level (BSL) equal to average lead time demand, what would you expect the fill rate to be?
B. Suppose that the standard deviation of demand during lead time is equal to the square root of average lead time demand (i.e., demand follows a Poisson distribution). What base stock level, BSL, is needed to achieve a fill rate of 95 percent? What is the reorder point, ROP, for this base stock policy?
C. If we left ROP at the level in part (b) but ordered chairs in batches of 2, would the fill rate increase or decrease? Why?