Windshields should nowitzki motors hold in safety stock

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1) Nowitzki Motors makes automobiles in Germany. The company must order windshields to be used in its cars. Using a detailed forecasting model, Nowitzki Motors has forecasted weekly customer demand for its cars to be normally distributed with a mean of 5,000 units and standard deviation of 1800. The company can place an order for more windshields at any time and aspires to fulfill a cycle service level of 98%. The windshield supplier has agreed to deliver windshields three weeks after order placement.

a) How many windshields should Nowitzki Motors hold in safety stock? What should they use for a reorder point?

b) Nowitzki Motors would like to reduce its safety stock in half by decreasing the lead time for windshields. What would the lead time for windshields have to be in order for the company to be able to cut its safety stock in half?

c) Nowitzki Motors uses a 20% annual holding cost rate and values each windshield at $225. What would be the expected annual increase in holding costs from additional safety stock if Nowitzki Motors decided to implement a periodic review inventory policy with a review interval of 4 weeks (all other parameters remain unchanged)?

Reference no: EM132292443

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