Zay, Inc. is a major manufacturer of large truck axles. Iron ore is one of the major raw materials used in this production operation. Zay currently pays $700 per ton for iron ore. The delivery lead time from the supplier to Zay is one month (30 days). Zay estimates that it uses iron ore at a rate of 1,800 tons per month (30 days) and standard deviation of 300 per month. Zay has implemented a periodic review management policy and orders iron ores once per month. The lead time for iron ore is one month. The company would like to satisfy a cycle service level of 0.99 for its use of iron ore (the associated z value can be found in Table 2.2 in the textbook, or using the Excel formula NORMSINV(service level)).
1. Compute the safety stock and the base stock level (B) at Zay, Inc.
2. What is the expected average amount of inventory resulting from this periodic review policy at Zay, Inc.
3. What would be the safety stock if Zay, Inc. used a continuous review instead of periodic review policy?