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2. WiFi Labs sells wireless routers that are very popular in the market with a weekly demand that is normally distributed with a mean of 20,000 and a standard deviation of 6,000. WiFi outsources manufacture of these routers to a local contract manufacturer who charges $50 per router.
Each time, WiFi places an order, they incur an order placement and transportation cost of $2,000 ($100 for order placement and $1,900 for transportation). WiFi has an annual holding cost of capital at 20 percent. The lead time for replenishment at the local supplier is 1 week. Assume 50 weeks in a year.
i. What is the optimal order size that WiFi should order from its contract manufacturer each time they place their order?
ii. What should the reorder point be if WiFi wants to provide a service level of 95 percent? Explain its relationship to the quantity you found in i.
iii. An overseas supplier has been identified who can supply routers for $49 each. The overseas shipping will raise the cost of each order to $50,000 and the lead time of supply to 4 weeks. Should WiFi use the overseas supplier? Explain showing all your work.
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