BookCo is selling a textbook with a monthly demand of 1,000 units. It costs BookCo $40 to place an order. The annual holding cost rate is 30%, and a textbook costs $18. Historical data shows that the daily demand follows a normal probability distribution with a mean of 80, and a standard deviation of 9. Assume the time from ordering to receipt is 5 days, and service probability is 97%.
a) What is the recommended order quantity?
b) What are the reorder point and safety stock?
c) Suppose the production manager is told to reduce the safety stock of this item by 10 units. If this is done, what will the new service probability be?