Determine the optimal inventory policy

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Reference no: EM131041769

Chicago’s Treadway Tires Dealer must order tires from its national warehouse. It costs $10,000 to place an order and $400 to review the inventory level. Annual tire sales are N(20,000, 4,000,000). It costs $10 per year to hold a tire in inventory, and each order arrives two weeks after being placed (52 weeks 1 year). Assume that all shortages are backlogged.

a. Estimate R and the number of orders per year that should be placed.

b. Using the answer in part (a), determine the optimal (R, S) inventory policy. Assume that the shortage cost is $100 per tire.

Reference no: EM131041769

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