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Determine the safety stock

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RCC wine distributor stocks cases of exclusive wines for sale. One type of wine that RCC distributes is Carmenere. Each case of this wine is purchased by RCC for $200. Since it is sent from Chile in intermodal containers it has a high lead time of 2 months and the company uses an inventory holding cost based on a 20% annual interest rate. The cost of order processing is $1000 per order. Annual demand for this wine follows a normal distribution with mean 240 and standard deviation 24.495. Assume that if a case of wine is demanded when RCC is out of stock, then the demand is backordered, and the cost associated with each backordered case is $80.

a) Compute the mean and standard deviation of demand during lead time.

b) The manager of RCC uses a (Q, R) policy. Find the optimal values of the order quantity (using EOQ approximation) and the reorder level.

c) Determine the safety stock.

d) What are the average annual holding, setup, and penalty costs?

e) What is the "cost of uncertainty", which is the cost associated with having demand uncertainty?

(Hint: cost of uncertainty can be defined as the cost difference between the current situation and the situation when there is no demand uncertainty.)

f) What is the service level?

Reference no: EM133277866

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