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Dunstreet's Department Store would like to develop an inventory ordering policy with a 95 percent probability of not stocking out. To illustrate a recommended procedure, use as an example the ordering policy for white percale sheets.
Demand for white percale sheets is 5,000 per year. The store is open 365 days per year. Every two weeks (14 days) inventory is counted and a new order is placed. It takes 10 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. We just counted the inventory, and there are currently 150 sheets on hand.
How many sheets should be ordered at this time?
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What additional annual cost is the shop incurring by staying with this order size?
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