What are best base-stock level-corresponding average cost

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Reference no: EM132241491

A supplier always avoids shortages with overtime production. The company follows a base-stock policy, but the operations manager must decide what base-stock level is optimal. Demand is normally distributed with mean 5000 and standard deviation 600. The holding cost is $0.50 per period per unit but if there is a shortage (of even just one unit!), the supplier must run overtime production with a fixed cost of $300 and an extra cost per unit of $2.50. The product can be produced in any quantity during regular or overtime production. By simulating numerous times, determine the base-stock level that minimizes the average holding/overtime production cost per period.

a) What are the best base-stock level and b) the corresponding average cost per period?

c) During what proportion of periods is overtime production required (for the best base-stock level)?

Reference no: EM132241491

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