Fixed-order quantity model and fixed-time period model

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Reference no: EM132260456

1. If lead time decreases, this would result in (for both fixed-order quantity model and fixed-time period model):

A. Decrease in pipeline stock only

B. Decrease in safety stock only

C. Decrease in cycle stock only

D. Decrease in pipeline stock and safety stock

E. Decrease in pipeline stock, safety stock, and cycle stock F. This has no impact on inventory levels in the system

Choose one, and explain why.

2. A mail-order firm has four regional warehouses. Weekly demand at each warehouse is normally distributed with a mean of 10,000 units and a standard deviation of 2,000 units. The company purchases each unit of product at $10. Annual holding cost of one unit of product is 25% of its value. Each order incurs an ordering cost of $1,000 (primarily from fixed transportation costs), and lead time is 1 week. The company wants the probability of stocking out during the lead time at each warehouse to be no more than 5%. Assume 50 working weeks in a year.

What is the optimal order quantity for one single warehouse?

Reference no: EM132260456

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