Fry’s electronics, a large electronics retailer, purchases 1TB hard disks and sells them to customers. The store operates on a continuous review inventory system.
- Weekly demand for disk drives is independent and normally distributed with a mean of 50 and a standard deviation of 15.
- Lead time is 2 weeks
- Holding cost for a disk drive is $1/unit/week
- Ordering costs are $400.00/order
- Desired fill rate is 98.0%
a. What order quantity and reorder point, (Q, R), should the distribution center use?
b. What order quantity and reorder point, (Q, R), should the distribution center use if, instead of a fill rate of 98%, a penalty cost of p = $10/unit is used instead?