Corporatio rid of the variability in its lead-time per order

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Reference no: EM1387482

Q. A hospital must order the drug Propel from Daisy Drug Corporation. It costs $500 to place an order. Yearly demand for the drug is normally distributed with mean 10,000 and standard deviation 3000 and it costs $5 to hold one unit in inventory for one year (a unit is a standard container for the drug). Orders arrive one month on the average after being placed - there is a standard deviation of 10 days. Assume all shortages are backlogged.

a. Illustrate what (Q,R) policy should the corporation use if it needs to meet 95% of all customer demand from existing inventory?

b. Suppose the corporation could pay C dollars per year to get rid of the variability in its lead-time per order. Illustrate what is the most it would be willing to pay to do this (and still have a 95% service level)?

Reference no: EM1387482

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