Problem: A local service station is open 7 days per week, 365 days per year. Sales of 10W40 grade premium oil average 25 cans per day. Inventory holding costs are $0.75 per can per year. Ordering costs are $9 per order. Lead time is 1.5 weeks. Backorders are not practical - motorists drive away.
1. Assuming deterministic demand, calculate the economic order quantity and reorder point.
2. The boss is concerned about this model because demand varies. The standard deviation of demand was determined from a data sample to be 2.5 cans per day. The manager wants a 95% service level. Determine a new inventory plan (i.e., EOQ and ROP) based on this information.