Calculate the best service level

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Reference no: EM133345063

Question: Paul wanted to measure the potential impact of his device on soft drink vending machines, so he tried to think of different ways the vending company might use it to make stocking decisions. One possible scenario would be for the device to monitor demand and inventory, and transmit replenishment orders as needed according to a (Q,R) policy. Paul estimates that a leadtime of 2 weeks gives the company adequate time for effective distribution scheduling and delivery. A 12 oz can costs $0.10 to the company and sells for $0.65 on the vending machines. In addition to the lost sale, the company estimates an additional (goodwill) loss of $0.35 per stocked-out can from future sales. Shipping costs are $200 per order. The company uses a cost of capital of 25% annualy. Weekly demand for a typical vending machine is normally distributed with a mean of 1000 and standard deviation of 10. Assume 52 weeks per year. For a typical vending machine:

(a) [1] What is the economic order quantity?

(b) [2] Calculate the best service level.

Reference no: EM133345063

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