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The Home & Garden (HG) chain of superstores imports decorative planters from Italy. Weekly demand for planters averages 2000 with a standard deviation of 800. Each planter costs $15. HG incurs a holding cost of 30% per year to carry inventory. HG has an opportunity to set up a superstore in the Phoenix region. Each order shipped from Italy incurs a fixed transportation and delivery cost of $8000. Delivery lead time from Italy is 4 weeks (no variability) and HG would like to provide its customers a cycle service level of 99%. Consider 52 weeks in the year.
a. Determine the optimal inventory policy for planters that HG should use.
b. What is the total annual inventory holding cost under the optimal inventory policy?
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