Assignment task:
A factory buys N95 masks in bulks for daily usage of its employees. It is estimated that the weekly usage of N95 masks at the factory is normally distributed with a mean of 27 cases and a standard deviation of 5 cases. The factory operates 45 weeks in a year. The factory orders the masks directly from a supplier who takes 1 week to fulfill an order. The cost of preparing, placing, and shipping an order sums up to $10 per order. The annual holding cost of the masks is $75 per case. The factory adopts a Fixed-Order Quantity Model to manage the inventory of its N95 masks.
1) If the factory would like to achieve a service level of 98%, what is the minimum reorder point (in cases) it can use?
2) Suppose the factory has a holding cost constraint such that the annual holding cost for the N95 masks cannot exceed $625. What is the optimal ordering quantity (in cases) that the factory should use under this constraint?
Hint: Your answer is the quantity closest to EOQ which results in an annual holding cost no greater than $625.
3) Suppose the factory changes its ordering policy of the N95 masks to order every 2 weeks, and the order quantity will bring the inventory level to 100 cases. The three-weeks demand is normally distributed with a mean of 81 cases and a standard deviation of 8.66. What is the service level under this ordering policy?
4) Assume the same situation as in Question 3, but assume that the factory would like to achieve a service level of 99%. What is the minimum target stock level (in cases) to achieve this?