A gourmet coffee shop in downtown SF is open 200 days a year and sells an average of 75 pounds of Kona Coffee beans a day. (Demand can be assumed to be distributed normally with a standard deviation of 15 pounds/day.) After ordering (fixed cost = $16 per order), beans are always shipped from Hawaii within exactly 4 days. Per-pound annual holding costs for the beans are $3.
a) What is the economic order quantity (EOQ) for Kona coffee beans? (400)
b) What are the total annual holding costs of cycle stock for Kona coffee beans? ($600)
c) What are the total annual fixed ordering costs for Kona coffee beans? ($600)
d) Assume that management has specified that no more than a 1% risk during stock out is acceptable. What should our reorder point (ROP) be? (369.79)
e) What is the safety stock need to attain a 1% risk of stock-out during lead time? (69.79)
f) What is the annual holding cost of maintaining the level of safety stock needed to support a 1% risk?
g) If management specified that a 2% risk of stock-out during lead time would be acceptable, would our safety stock holding costs decrease or increase?