Assignment:
You are the store manager at a large furniture store. One of your products is a study desk. Weekly demand for the desk is normally distributed with mean 40 and standard deviation of 20. The lead time from the assembly plant to your store is two weeks and you order inventory replenishments weekly. You use the order-up to model to control inventory.
a. Suppose the order-up to level is S =220. You are about to place an order and note that your inventory level is 100 and you have 85 desks on orders. How many desk will you order?
b. Suppose the order-up to level is S =220. You are about to place an order and note that your inventory level is 160 and you have 65 desks on orders. How many desk will you order?
c. What is the optimal order-up to level if you want to target a 98 percent in-stock probability?
d. Suppose the order-up to level is S = 120. What is your expect on-hand inventory?
e. Suppose your order-up to level is S=120. Your internal cost of capital is 15 percent and each desk costs $200. What is your total cost of capital for the year for inventory in the store?