A retailer wishes to determine an inventory management policy for one of its fast moving consumer electronic products. It has collected demand by week during the past quarter as shown below (to estimate mean and SD of demand):
1 2 3 4 5 6 7 8 9 10 11 12 13
1050 1110 1350 985 1222 1050 1235 1432 1135 1045 1256 1543 1345
The cost of the product to the retailer is $150, the fixed cost to place an order to the distributor is $500, and the cost to holding an item in stock for one year is 18% of the product's cost to the retailer. The retailer wishes to have a 99% service level. Assume lead time for replenishment is three weeks.
Determine the order quantity, average lead time demand, safety stock, reorder point, and average inventory level if a continuous review inventory policy is used.
Assuming the review period is two weeks, determine the average demand over the lead time plus the review period, safety stock, base-stock level, and average inventory level if a periodic review policy is used.
Based on your results from 1. and 2. above, which one would lead to lower average inventory levels? Is one policy always better than the other?
What is the impact of reducing the service level to 95% on both policies? Does it change which policy has the lowest average inventory level?