Warehouse location reduces consistency of on-time deliveries

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Reference no: EM132307834

A small shop implemented a continuous review policy in managing its inventory with the given parameters for one item:

Annual demand: 15,000 units

Holding costs: 40% of purchase price per year.

Landed purchase cost: $10 Setup cost: $75 per order

Number of working days per calendar year: 250

Lead time: 3 days

Required service level: 95%

The variances in lead time is essentially zero.

The standard deviation of daily demand is 20 units.

Management realized that their new warehouse location reduces the consistency of on-time deliveries. The average lead time remained the same, but a lead time variance of 2 was observed. Refine the safety stock level in units of product to mitigate both lead time and demand uncertainties. Round your answer to the nearest whole unit.

Reference no: EM132307834

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