Per Norstrom supplies computer systems to a warehouse in Rotterdam. He sells 16 systems a week. The cost of an average system is C-- 5,000, while order administration costs and delivery from Malaysia cost C-- 1,000. The lead time is around 4 weeks and holding costs are around 16 per cent a year. What policy would you recommend for Per?
3.4 Demand for an item is constant at 40 units a week, and the economic order quantity is calculated to be 100 units. What is the reorder level if lead time is constant at 4 weeks? What is the effect of adding some margin of safety and raising the reorder level by ten units? What happens if the lead time
(a) falls to 2 weeks or (b) rises to 6 weeks?