Problem- EOQ, uncertainty, safety stock, reorder point. Stewart Corporation is a major automobile manufacturer. It purchases steering wheels from Coase Corporation. Annual demand is 10,400 steering wheels per year or 200 steering wheels per week. The ordering cost is $100 per order. The annual carrying cost is $13 per steering wheel. It currently takes 1.5 weeks to supply an order to the assembly plant
1. What is the optimal number of steering wheels that Stewart's managers should order according to the MG model?
2. At what point should managers reorder the steering wheels, assuming that both demand and purchase-order lead time are known with certainty?
3. Now assume that demand can vary during the 1.5-week purchase-order lead time. The following table shows the probability distribution of various demand levels:
|
Total Demand for Steering Wheels for 1.5 Weeks
|
Probability of Demand (sums to 1)
|
|
100
|
0.15
|
|
200
|
0.20
|
|
300
|
0.40
|
|
400
|
0.20
|
|
500
|
0.05
|