Benji’s Bar and Restaurant uses 5,000 quart bottles of an imported wine each year (closed two weeks per year). Weekly demand is 100 bottles with a standard deviation of 25 bottles. The wine costs $3 per bottle and is served only in whole bottles because it loses its bubbles quickly. Benji figures that it costs $10 each time an order is placed, and holding costs are 20 percent of the purchase price. It takes four weeks for an order to arrive.
Benji would like to use an inventory system (Fixed - Order Quantity model) that will provide a service level of 90 percent. At what inventory level (reorder point) should he place an order?