Continuous review policy, The annual sugar inventory'

Continuous review policy

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Reference no: EM131012872

Annual demand for sugar in a local soft drink company follows a normal distribution with a mean of 800 tons and a standard deviation of 28 tons. The company operates 49 weeks a year. Weekly demands are independent. The regular lead time for replenishing sugar is 1 week. The replenishment lot size is 50 tons. If the company runs out of sugar, it will arrange for an emergency overnight delivery by paying $200 per ton on top of the regular price. The annual sugar inventory' holding cost is $800 per ton. What is the optimal cycle service level? How much safety inventory' should the company hold under a continuous review policy?

Reference no: EM131012872

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