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Southside restaurant uses a fixed quantity (continuous replenishment) system. Daily demand for bags of coffee is normally distributed with a mean of 36 and standard deviation of 8. The lead time is constant at 5 days. The management wants to have a 92 percent service level and the restaurant is open 365 days per year. Holding costs are $0.50 per year and the ordering costs are $2.5 per order. .
a. Determine the order quantity at which the total inventory costs would be minimized?
b. What is the reorder point and the time between orders?
c. Illustrate the order quantity, re-order point, safety stock and lead time on a diagram where the Y-axis represents the number of coffee bags and the x-axis represents the time? What is the maximum possible inventory in the system at any point of time?
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