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Dunstreet's Department Store would like to develop an inventory ordering policy of a 98 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets.
Demand for white percale sheets is 3,900 per year. The store is open 365 days per year. Every three weeks (21 days) inventory is counted and a new order is placed. It takes 15 days for the sheets to be delivered. Standard deviation of demand for the sheets is four per day. There are currently 130 sheets on hand.
How many sheets should you order?
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The annual holding cost rate is 40%, annual demand is 900, and the order cost is $20 per order. The lead time is 4 days. The store is open 300 days per year. What is the optimal order quantity?
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