Problem:
Suppose that an auto part in a manufacturer's inventory has the following characteristics:
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Forecast of demand
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1,250 cases per week
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Forecast error, std. dev.
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475 cases per week
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Lead Time
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2.5 weeks
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Carrying Cost
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30% per year
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Purchase Price, delivered
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$56 per case
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Replenishment Order Cost
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$40 per order
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Stockout Cost
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$10 per case
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Probability of being in stock during the lead time, P
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80%
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Required:
Question 1) Design a reorder point control system for this part, given the assigned P. How would you state the inventory control policy if the ROP > Q*?
Question 2) Design a periodic review system for this part. Now assume that the probability of being in stock extends to the order interval plus lead time.
Solve the given numerical problem and illustrate step by step calculation.