Supply chains using the order-up-to inventory model, Operation Management

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Demand for Caruso's Frozen Pizza (CFP) is normally distributed. The demand for CFP averages 400 per day with a standard deviation of 200. Weekly demand (5 days) averages 2,000 units with a standard deviation of 555. A Cold can essentially order any quantity of CFP it wants each day. Any order for CFPs arrives 4 days after the order. Further, it costs ACold $0.01 per day to keep a CFP in inventory, while a back order is estimated to cost ACold $0.45.

A.    Suppose the base stock level 2,800 is chosen. What fraction of customer demands is met immediately from stock?

B.     Suppose the base stock level 2,800 is chosen. What is the average amount of inventory on order?

C.     Suppose the base stock level 2,800 is chosen. What is the annual holding cost? (Assume 260 days per year)

D.    What base stock level minimizes inventory while maintaining a 97 percent in-stock probability


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