The average demand of particular product

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Reference no: EM132292356

A distributor of consumer-electronics goods has found that the average demand of a particular product is 280 units per week. However, the daily sales volume fluctuates a lot and the estimated standard deviation of daily demand is 5. For this product the distributor uses a fixed quantity inventory model. Once the inventory level falls below a threshold, they place an order to the supplier and it takes 2 weeks to get replenishment (this does not vary as the supplier is very reliable). Also, each time a replenishment order is placed is costs the distributor $500 for processing the order (not the purchase price). The distributor can order in larger quantity to reduce processing costs, but its costs $4 to hold one unit of the inventory for a year. Unit purchase price the product is $120. The probability of stock-out should be no more than 1%.

Use 7 days in a week and 52 weeks in a year in your calculations. Z0.95 = 1.645 and Z0.99 = 2.326.

How many units should be ordered each time?

When a new order should be placed?

Due to recent supply chain disruptions the management has decided to change the inventory policies. While it is still taking 2 weeks on an average to get the replenishment, because of uncertainties experienced the management likes to include standard deviation of 1week for the replenishment lead time in the analysis. It is also decided that up to 5% stock-out would be acceptable. If rest of the information remains unchanged, what would be the safety stock?

Reference no: EM132292356

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