Daily demand for chocolate syrup for a local chain of fast food restaurants is normally distributed with a mean of 30cans/day and a standard deviation of 28 cans. Supply is virtually certain with a lead time of two days ;the cost of placing an order is $2.50, and annually carrying charge are 80% of the unit price of $.60/can. A 98% service level is desired. Service level is interpreted as the probability that there will be stock out of any size during lead time. The restaurant chain serves 365 days a year.
a) What is the operating doctrine for Chocolate syrup?
b) What is the annual cost for chocolate syrup buffer stocks?
c) What impact does the variability of demand seem to have on buffer stock?