A product costs SXXH $ 2.95 per unit. The annual holding cost rate is 20%. A fixed-quantity model recommends an order quantity of 300 units per order.
1. If lead time is one week and the lead-time demand is normally distributed with a mean of 150 units and a standard deviation of 40 units, what is the reorder point if the firm is willing to tolerate a 1% chance of stockout on any one cycle?
2. What safety stock and annual safety stock cost are associated with your recommendation in part (1)?
3. What is the recommended replenishment level for a periodic-review system if the firm is willing to tolerate the same 1% chance of stock-out associated with any replenishment decision?
4. What safety stock and annual safety stock cost are associated with your recommendation in part (3)?